1. Based on the IS-LM model, derive the aggregate demand curve in the three sector economy. What...

1. Based on the IS-LM model, derive the aggregate demand curve in the three sector economy. What are the factors that cause the aggregate demand curve to be negatively sloped?

2. Using the IS-LM curve framework, analyze the effects of each of the following shifts on the level of income and the interest rate.

(a) A fall in the autonomous component of investment

(b) An open market purchase of securities by the Federal Reserve System

3. (a) Will monetary policy be more or less effective the higher the income elasticity of money demand? How does interest elasticity of money influence the effectiveness of fiscal policy?

(b) Explain the relationship between fiscal policy and the interest elasticity of investment demand.

Expert Solution

Rahul Sunny answered 2 years ago

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