Draw fully labeled graphs. (a) Use the financial market diagram to derive the LM curve when...

Draw fully labeled graphs.

(a)

Use the financial market diagram to derive the LM curve when there is an interest rate target. Explain.

(b)

What is the slope and intercept of the LM curve when there is an interest rate target?

(c)

When is fiscal policy more effective at changing the level of output: when the central bank maintains a fixed real money supply or when the central bank sets an interest rate target? Draw the IS-LM model and explain.

Expert Solution

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Rahul Sunny answered 1 year ago

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