Assignment
The Keynesian Model - the Keynesian Cross model and the IS curve
Answer all the questions
1. What is Keynes' theory of the consumption function? What is the marginal propensity to consume (the parameter b)? Why is it less than one?
2. What is the multiplier? Using hypothetical values explain how is equilibrium output changed after the change in Investment?
3. Why Tax multiplier always smaller ( in absolute term) than to expenditure multiplier
4. What is the IS curve? How does one get from the Keynesian Cross diagram to the IS curve?
5. Explain what happens to the IS curve if there is a fall in 1) government spending, 2) investment, 3) the income tax rate,4) investment sensitivity to interest rate,5) marginal propensity to imports.