Suppose investment demand rises in an autarky. Which of the following statements or graphs correctly indicate the long-run economic impact according to the classical model when consumption depends only on disposable income?Note: This is a multiple-answer question; thus, more than one option may be correct.a.Investment expenditure remains unchanged.b.National saving remains unchanged.c.d.The real interest rate rises.
Question
Suppose investment demand rises in an autarky. Which of the following statements or graphs correctly indicate the long-run economic impact according to the classical model when consumption depends only on disposable income?Note: This is a multiple-answer question; thus, more than one option may be correct.a.Investment expenditure remains unchanged.b.National saving remains unchanged.c.d.The real interest rate rises.
Solution
In the classical model, an increase in investment demand in an autarky would have the following impacts:
a. Investment expenditure remains unchanged - This statement is incorrect. In the classical model, an increase in investment demand would lead to an increase in investment expenditure. This is because businesses would be willing to spend more on capital goods to increase their production capacity.
b. National saving remains unchanged - This statement is incorrect. In the classical model, an increase in investment demand would lead to an increase in national saving. This is because the increase in investment would lead to an increase in income, which would in turn lead to an increase in saving.
c. The real interest rate rises - This statement is correct. In the classical model, an increase in investment demand would lead to an increase in the real interest rate. This is because the increase in demand for loanable funds would drive up the price of those funds, which is the interest rate.
d. The statement or graph is not provided, so it cannot be evaluated.
Similar Questions
Assume the graph below indicates the long-run impact on the loanable funds market of a closed economy. Select all scenarios for which the above graph correctly illustrates the long-run effect according to the classical model.Note: This is a multiple-answer question; thus, more than one option may be correct. a. An increase in government expenditure. b. A decrease in transfer payments. c. A decrease in taxes. d. A decrease in government expenditure.
Suppose the government of a small open economy reduces social welfare benefits. Which of the following statements or graphs correctly indicate the long-run economic impact of the fiscal policy change on the small open economy according to the classical model?Note: This is a multiple-answer question; thus, more than one option may be correct.a.b.National saving decreases.c.
Investment demand (I)When one observes consumption and investment patterns over time, one finds that:QUESTION 8SELECT ONE:a.like consumption, investment is fairly stable over time.b.like consumption, investment is fairly erratic over time.c.unlike consumption, which is subject to erratic fluctuations, investment is fairly stable over time.d.investment is rarely affected by technological and economic factors.e.unlike consumption, which is fairly stable over time, investment is subject to erratic fluctuations.
Suppose the government of a very large open economy implements a contractionary fiscal policy. Which of the following statements or graphs correctly indicate the long-run economic impact of the foreign fiscal policy on a small open economy according to the classical model?Note: This is a multiple-answer question; thus, more than one option may be correct.a.Domestic output decreases.b.Domestic output remains unchanged.c.d.
Suppose the government of a closed economy reduces social welfare benefits. Which of the following statements or graphs correctly indicate the long-run economic impact according to the classical view with fixed supplies of labour and capital?
Upgrade your grade with Knowee
Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.