Consider the economy of Panda Republic which is characterized by the following IS-LM model.IS equation: Y = C(Y - T) + I(Y , i ) + GLM equation: i = i(Hint: You must draw the graph to answer the following questions)a. In 2008, consumer confidence fell significantly due to fears of recession. How would this affect the economy? Describe graphically.Answer:The fall in consumer confidence would [ Select ]aggregate consumption. Graphically, the [Select]v curve shifted[ Select ]. As a result, the output ( Select]Given the interest rate, investment [ Select]The economy fell into a recession.b. In response, the government implemented an expansionary fiscal policy by cutting taxes. Describe graphically the effects on the economy.Answer:The tax cut would [ Select ]consumption, shifting the [Select][ Select ].As a result.curvethe output[ Select ]Given the interest rate, investment ( Select ]The economy would get out of the recession.c. Suppose that the government was running a large budget deficit, constraining the use of an expansionary fiscal policy. In fact, the government had to implement acontractionary fiscal policy to reduce the deficit. However, the Fed was able to use its expansionary monetary policy. The interest rate was cut. Describe graphicallythe effects of this policy mix on the economy.Answer:The fiscal contraction would shift [ Select ]The monetary expansion would shift [ Select ]. As a result, theinterest rate [ Select ]v while output and investment ( Select]. If output [ Select ]investment would [ Select ]

A) The fall in consumer confidence would decrease aggregate consumption. As per Graph the IS curve…

Answered: Consider the economy of Panda Republic…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

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Do you need the aggregate demand model to determine the equilibrium of the IS curve model?

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