**Text Transcription:**IV. The government closure in the U.S. in 2013 has made some banks on Wall Street feel feared, leading to the widespread concerns of bank runs. As a result, a majority of commercial banks decided to keep more reserves. How would this change affect our economy’s output and interest rate in the short run? Show the effect on the interest rate and output using an IS-LM model.**Explanation of Diagrams:**The text does not contain any diagrams. However, it refers to an IS-LM model, which is a graphical representation used in macroeconomics to illustrate the relationship between interest rates and real output in the goods and services and money markets. A detailed explanation of how to construct and interpret this model would involve plotting the IS curve (representing equilibrium in the goods market) and the LM curve (representing equilibrium in the money market) on a graph where the x-axis represents output (GDP) and the y-axis represents the interest rate. Changes in bank reserves would typically shift the LM curve.

Higher bank reserves, assuming the required reserves ratio remains unchanged, will reduce bank…

Answered: IV. The government closure in the U.S.…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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