For each of the following pairs of economic variables, indicate whether they are
ID: 1177873 • Letter: F
Question
For each of the following pairs of economic variables, indicate whether they are directly related (ceteris paribus they rise and fall together), inversely related (ceteris paribus they move in opposite directions), or indeterminate.
4. Government spending and investment a. directly related, inversely related, or indeterminate? b. why?
5. The interest rate and investment a. directly related, inversely related, or indeterminate? b. why?
6. The capital-labor ratio and output per worker a. directly related, inversely related, or indeterminate? b. why?
7. The savings rate and steady state per capita consumption a. directly related, inversely related, or indeterminate? b. why?
For each of the following functional or equilibrium relationships, indicate which two variables the relationship describes %u2013 that is, when you draw the graph, how do you label the axes? %u2013 and whether the relationship is upward sloping or downward sloping. Again, give a brief explanation of the economic logic behind your answer.
9. Ld (liquidity demand a. which two variables?
b. upward or downward sloping? c. why?
10. LM (Liquidity-Money) a. which two variables?
b. upward or downward sloping? c. why?
11. AS (Aggregate Supply) a. which two variables?
b. upward or downward sloping? c. why?
12. AD (Aggregate Demand) a. which two variables?
b. upward or downward sloping? c. why?
Explanation / Answer
4. Government spending and investment
directly related
Higher the government spending ,better is the market scenario , higher is the investment due to confidence in the markrt.
5. The interest rate and investment
inversely related
With incresed rate of interesr investors would show less interest due to increased initial cost.
6.The capital-labor ratio and output per worker
inversely related
If the capital labour ratio is increased means cost per worker is increased which indicates a lower worker efficiency.If it os low it means less investment is required to attain desire output;
7. The savings rate and steady state per capita consumption
directly related;
HIgher the saving rate lower is the per capita consumption as less amount is l;eft to be spent.
II.
9. Ld (liquidity demand )
Supply Vs Demand;
Greater the supply less the demand (inversely propoprtional).
downward sloping becauese there is inverse relation;
10. LM (Liquidity-Money)
variables : The liquidity of a product can be measured as how often it is bought and sold; this is known as volume. Often investments in liquid markets such as the stock market or futures markets are considered to be more liquid than investments such as real estate, based on their ability to be converted quickly
Upward sloping because it has direct relation;
11. AS (Aggregate Supply)
Variable : Price level Vs actual GDP
Curve :Constant and then rising(upward)
The AS curve is drawn given some nominal variable, such as the nominal wage rate. In the short run, the nominal wage rate is taken as fixed. Thus, rising P implies higher profits that justify expansion of output
12. AD (Aggregate Demand)
Variables : price level Vs real output
Curve : downwards;
But different levels of economic activity imply different mixtures of output and price increases. As shown, with very low levels of real gross domestic product and thus large amounts of unemployed re sources, most economists of the Keynesian school suggest that most of the change would be in the form of output and employment increases. As the economy gets close to potential output (Y*), we would see more and more price increases rather than output increases as AD increases.
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