11. Graphically derive the LM curve from the money market equilibrium when the money supply is exogenously determined by the central bank and remain constant. That is, drive the positive relation between the interest rate and income. 12. Derive LM relation and graphically show it under the alternative assumption that the central bank sets a target interest rate (and adjusts the money supply so as to achieve it). In this case, LM relation would represent the combination of interest rate and output arising from an interest rate rule.

11. Graphically derive the LM curve from the money market equilibrium when the money supply is exogenously determined by the central bank and remain constant. That is, drive the positive relation between the interest rate and income. 12. Derive LM relation and graphically show it under the alternative assumption that the central bank sets a target interest rate (and adjusts the money supply so as to achieve it). In this case, LM relation would represent the combination of interest rate and output arising from an interest rate rule.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

11. Graphically derive the LM curve from the money market equilibrium when the money
supply is exogenously determined by the central bank and remain constant. That is, drive the
positive relation between the interest rate and income.
12. Derive LM relation and graphically show it under the alternative assumption that the central
bank sets a target interest rate (and adjusts the money supply so as to achieve it). In this case,
LM relation would represent the combination of interest rate and output arising from an
interest rate rule.

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