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In: Economics

Use the IS-LM model to predict the SR effects of each of the following shocks on...

Use the IS-LM model to predict the SR effects of each of the following shocks on income, the interest rate, unemployment, consumption, and investment. For each case, state how the economy moves from one point in the business cycle to another.

A) After the invention of a new high speed computer chip, many firms decide to upgrade their computer systems. Explain what the central bank should do to keep income at its full employment level.

B) A best- seller titled Retire Rich convinces the public to increase the percentage of thier income devoted to saving. Explain what the Government should do to keep income at full employment level.

C) In the above cases, the economy goes back to its full employment. Do you notice any difference in the final equilibrium between the two cases?

(Please answer all parts. Show graph)

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Expert Solution

Rahul Sunny answered 2 years ago
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