Based on Our Understanding of the IS-LM Model That Takes

question 15

Multiple Choice

Based on our understanding of the IS-LM model that takes into account dynamics,we know that a reduction in government spending will cause

• A)an immediate drop in Y and immediate increase in i.
• B)an immediate reduction in i and no initial change in Y.
• C)a gradual reduction in i and gradual reduction in Y.
• D)a gradual reduction in i and an immediate reduction in Y.

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Definitions:

Net Present Value

This signifies the net difference in present value terms of cash received versus cash paid out over an outlined time interval.

Internal Rate of Return

The discount rate at which the net present value of all cash flows (both positive and negative) from a project or investment equals zero.

Decision Rule

A guideline or criterion that aids in making choices between alternative courses of action.

Net Present Value (NPV)

A financial metric that calculates the difference between the present value of cash inflows and outflows over a period, used for assessing profitability of investments.