Keynesian Economics: Government spending and debt sustainability In Tutorial Library

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TITLE: Keynesian Economics: Government spending and debt sustainability

CLASS / COURSE: Macroeconomics


Keynesian Economics: Consider a Closed economy with government


a). Represent graphically the IS-LM equations and describe verbally what relation do they describe. 


Assume that the government decides to decrease government spendings


b). What happened to the equilibrium level of output and interest rate? use the graph and explain the intution. 


Describe the mechanism at work, in particular:

c). What happens in the goods market?

d). What happens in the money market?

e). What do these imply for investment?


QUESTION: Debt Sustainability 


Assume countries A and B have identical levels of public debt ratio but investors only worry about the sustainability of country A debt. 

Explain why in particular. Explain when debt is considered sustainable versus non sustainable. 

SOLUTION DESCRIPTION: A decrease in the government spending decreases the aggregate supply of goods because producers will no longer......

1. Economics
2. Macroeconomics

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