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In: Economics

Imagine 2 economies that are identical in every way, but economy A has a high marginal...

Imagine 2 economies that are identical in every way, but economy A has a high marginal propensity to consume (MPC) and B has a low (MPC).

(i) show graphically and explain using the IS-LM model the effect on output and the interest rate if the money supply increased by the same amount in both economies.

(ii) Show graphically and explain the effect on output and the interest rate if the central bank decides to sell bonds through open market operations.

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Expert Solution

Rahul Sunny answered 2 years ago
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