In the Keynesian model, everything else equal, a higher level of income
a. increases money demand and reduces the interest rate.
b. increases money demand and increases the interest rate.
c. increases savings and decreases the interest rate.
d. increases investment and has no effect on the interest rate.
e. both b and c.
Question 2
In the simple Keynesian model, if the equilibrium level of income is 300 billion, the MPC is 0.75, and government expenditures increase by 20 billion. What is the new equilibrium level of income?
a. 320 billion
b. 380 billion
c. 220 billion
d. 520 billion
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