In examining the impact of fiscal policy, it is assumed that:
A) consumption, investment, and the interest rate are endogenous variables.
B) consumption, investment, and the interest rate are exogenous variables.
C) government purchases, taxes, and interest rates are endogenous variables.
D) government purchases, taxes, and interest rates are exogenous variables.

Question

Quizplus · Accepted Answer

Endogenous variables are those that are determined within the model, while exogenous variables are determined outside the model. In the case of examining the impact of fiscal policy, it is assumed that consumption, investment, and the interest rate are endogenous variables, as they are all impacted by changes in government purchases and taxes. On the other hand, government purchases, taxes, and interest rates are exogenous variables, as they are determined by the government's policy choices.

In Examining the Impact of Fiscal Policy, It Is Assumed