For the following policy shocks in the US, use the IS-LM models to predict if the...

For the following policy shocks in the US, use the IS-LM models to predict if the situation will cause the interest rate (r) and income (Y) to increase or decrease.

1. Central bank sells large amount of mortgage securities.

2. Government hires more workers, but raises taxes so budget deficit doesn't change.

3. Central bank lowers reserve requirements for commercial banks.

4. Government offers young firms special tax benefits.

Expert Solution

1). Income (Y) will decrease and Interest rate (r) will increase.

2). Income (Y) will decrease and Interest rate (r) will increase.

3). Income (Y) will increase and Interest rate (r) will decrease.

4). Income (Y) will increase and Interest rate (r) will decrease.

Rahul Sunny answered 2 years ago

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