Use the IS-LM model to explain and show how the level of income and the rate...

Use the IS-LM model to explain and show how the level of income and the rate of interest are affected by each of the following changes in a closed economy respectively:

(a) An autonomous decline in investment spending.

(b) An increase in money supply.

(c) An increase in government expenditure financed by an equal amount in taxes.

Expert Solution

Rahul Sunny answered 1 year ago

Using the IS-LM model, show and explain how a decrease in taxes affects the interest rate...

Using the IS-LM model, show and explain how a decrease in taxes affects the interest rate and output.

2 LM model: thought experiment: Use money market equilibrium to graphically show how LM curve shift...

2 LM model: thought experiment: Use money market equilibrium to graphically show how LM curve shift in following cases: (1) the Fed decide to sell government bonds this year; (2) the public’s inflation expection rises because one of the Fed officials told the media that the Fed will increase the money supply significantly next year in 2019. (3) real GDP increases because technology improves.

Use the IS-LM-PC model to explain how the economy adjusts to an increase in taxes in...

Use the IS-LM-PC model to explain how the economy adjusts to an increase in taxes in the medium run. Assume that the economy starts at a medium run equilibrium No graph necessary. Be sure to specify which curve shifts in the medium run. State how output, inflation, and the real interest rate change relative to the initial point where the economy started. Make sure that you state how inflation evolves differently under anchored expectations and under backward-looking expectations.

Explain the IS-LM model?

Use the classical IS-LM model to show the effects of a temporary decrease in government purchases...

Use the classical IS-LM model to show the effects of a temporary decrease in government purchases on the equilibrium levels of output, the real interest rate, employment, the real wage, and the price level.

Use the classical (RBC) IS-LM-FE model to show the effects on the economy of a temporary...

Use the classical (RBC) IS-LM-FE model to show the effects on the economy of a temporary adverse supply shock; for example, an increase in the price of oil. You should show the impact on the real wage, employment, output, the real interest rate, consumption, investment, and the price level.

A) Using the IS-LM model, show graphically and explain the effects of a monetary contraction. What...

A) Using the IS-LM model, show graphically and explain the effects of a monetary contraction. What is the effect on the equilibrium interest rate and level of output? B) Using the IS-LM model, show graphically and explain the effects of a monetary expansion. What is the effect on the equilibrium interest rate and level of output?

Assume the economy is at full employment. Use the IS-LM/ AD-AS model to show the short-run...

Assume the economy is at full employment. Use the IS-LM/ AD-AS model to show the short-run and long-run impacts of a positive demand shock such as an increase in business confidence and investment spending on: the real interest rate (r), real GDP (Y), unemployment (U), consumption spending (C), the nominal money supply (M), the price level (P) and the real value of the money supply(M/P). You must present properly labeled (IS-LM and AD-AS diagrams to show the SR and LR...

A – Using the IS-LM curves explain in detail and show a) how and why the...

A – Using the IS-LM curves explain in detail and show a) how and why the drop in housing prices caused a major financial crisis in 2008, then how the 2008 financial crisis transformed into a major economic crisis and crashed the economy. b) What would have happened if FED employed a set of monetary policies opposite of those we saw during the recession. Discuss their impact on the economy, output, interest rates, and consumption and investment expenditures. c) What...

Question 1 (a) Use the IS-LM model to illustrate and explain the effects of a decrease...

Question 1 (a) Use the IS-LM model to illustrate and explain the effects of a decrease in consumer spending on equilibrium GDP and interest rates. (b) Use the IS-LM model to illustrate and explain how a government could use fiscal policy to offset the effects of the decrease in consumer spending from question 1) above. (c) Use the IS-LM model to illustrate and explain the change of equilibrium GDP and interest rates resulting from a decrease in the money supply....

Question