For eachof the following events and assuming ceteris paribus, describe and explain concisely the effects, if any, on the IS schedule and/or the LM schedule (or alternatively the MP schedule) and hence the output and real interest rate in equilibrium. a). Taxes fall. b). Government purchases fall but at the same time the central bank changes its policy to set a higher real interest rate at a given level of output than before. c). The demand for real money balances increases.
For eachof the following events and assuming ceteris paribus, describe and explain concisely the effects, if any, on the IS schedule and/or the LM schedule (or alternatively the MP schedule) and hence the output and real interest rate in equilibrium. a). Taxes fall. b). Government purchases fall but at the same time the central bank changes its policy to set a higher real interest rate at a given level of output than before. c). The demand for real money balances increases.
Macroeconomics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506756
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter12: Fiscal Policy, Incentives, And Secondary Effects
Section: Chapter Questions
Problem 3CQ
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![For each of the following events and assuming ceteris paribus, describe and explain concisely
the effects, if any, on the IS schedule and/or the LM schedule (or alternatively the MP
schedule) and hence the output and real interest rate in equilibrium.
a). Taxes fall.
b). Government purchases fall but at the same time the central bank changes its policy to set
a higher real interest rate at a given level of output than before.
c). The demand for real money balances increases.
d). Investment demand becomes less interest sensitive.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F1a43e387-fd4d-41eb-844d-27144b9b6924%2F92b853e9-10eb-4075-96cf-f30d50a7231c%2F366v9q4_processed.jpeg&w=3840&q=75)
Transcribed Image Text:For each of the following events and assuming ceteris paribus, describe and explain concisely
the effects, if any, on the IS schedule and/or the LM schedule (or alternatively the MP
schedule) and hence the output and real interest rate in equilibrium.
a). Taxes fall.
b). Government purchases fall but at the same time the central bank changes its policy to set
a higher real interest rate at a given level of output than before.
c). The demand for real money balances increases.
d). Investment demand becomes less interest sensitive.
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