8. Apply the Keynesian IS-LM model. Suppose the government reduces its spending but the central bank responds to keep income constant. a. Draw a graph to illustrate the change in equilibrium. | b. State whether each of the following variable will increase, decrease, or not change: interest rate, consumption, investment, and money supply. c. Explain how the interaction between fiscal policy and monetary policy kept income constant.

8. Apply the Keynesian IS-LM model. Suppose the government reduces its spending but the central bank responds to keep income constant. a. Draw a graph to illustrate the change in equilibrium. | b. State whether each of the following variable will increase, decrease, or not change: interest rate, consumption, investment, and money supply. c. Explain how the interaction between fiscal policy and monetary policy kept income constant.

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter24: The Influence Of Monetary And Fiscal Policy On Aggregate Demand

Section: Chapter Questions

Problem 5CQQ

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