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Author Question: The depreciation rate tells us A) the interest rate that should be used in present discounted ... (Read 109 times)

dmcintosh

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on: Jun 30, 2018
The depreciation rate tells us
 
  A) the interest rate that should be used in present discounted value calculations.
  B) the rate at which consumers deplete their total wealth in retirement.
  C) the difference between current and expected income.
  D) the difference between current and expected profits.
  E) how much usefulness a machine loses from year to year.

Question 2

Explain in detail what effect a Fed purchase of bonds will have on: (1 ) the LM curve; and (2 ) the IS curve.
 
  What will be an ideal response?


mcomstock09

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Reply #1 on: Jun 30, 2018
Answer to Question 1

E

Answer to Question 2

A Fed purchase of bonds will cause an increase in H and an increase in the money supply. This will cause an excess supply of money and the interest rate must decline to restore money market equilibrium. The LM curve will shift down as a result of this to reflect the now lower interest rate. The IS curve does not shift as a result of this. We would simply observe a movement along the IS curve.


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