Ec 301 Midterm
1. How are presidential election outcomes related to the performance of the economy?
Presidential elections and the economy have a very close relationship and they go together hand and hand. Usually when the economy is good and opinion of the government is positive, the incumbent or the party of the last president wins the election. People tend the lean towards why change a good thing.
A couple of theories exist in the relationship of the economy and presidents. The first one is that voters will vote for whichever president they feel shares the same economic vales that they have. Usually the poor vote liberal or for bigger government because they think they will provide more economic relief them and …show more content…
b. MD (money demand).
c. P (price index).
The LM curve deals with interest and income and is sloping upward. When the demand of money and supply of money equal each other the market is at equilibrium. The LM curve shifts when either the supply or demand of money changes. The FED has control over money supplied.
a. MS. Increasing money supplied would cause the LM curve to shift to the right. Money supplied would drop interest rates and shift the IS curve to right.
b. MD. An increase in money demand would cause the LM curve to shift to the right. Consumers are wanting to spend more which raises GDP
c. P. Price is the only one out of the three that a decrease is needed to shift the IS curve to the right. When prices go down wages go down and consumers have less to spend.
7. By how much will GDP change if firms increase their investment by $8 billion and the MPC is .80? If the MPC is .67? MPC .80 = 40 billion. The MPC produces a multiplier of 5. (1/(1-.8))=5. 5x8=40 billion
MPC .67 = 24 billion. The MPC produces a multiplier of 3.03030. (1/(1-.67))=3.0303. 3.0303x8= 24.2424 billion 8. Suppose that private sector spending is highly sensitive to a change in interest rate. Compare the effectiveness of monetary and fiscal policy in terms of rising and lowering real GDP.
A reduction in the national interest rate will increase the