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"The IS-LM model shows how national income is determined in the short run. The model can therefore be used to examine how various economic disturbances affect income." In terms of the above statement examine the impact of each of the exogenous events given below on the national income/output level and employment level. For each of the events a specific diagram (provided below) applies. Use the most relevant diagram to substantiate your answer, for example, state, "For 2.1d Diagram E applies." 2.1a). Firms in an economy become pessimistic about the future of the economy and this pessimism causes them to build fewer new factories. (10) 2.1b). The election of a popular president increases consumer confidence in the economy. This induces consumers to save less for the future and consume more today. (10) 2.1c). Restrictions on credit card availability is reduced and the amount of money people choose to hold decreases.

"The IS-LM model shows how national income is determined in the short run. The model can therefore be used to examine how various economic disturbances affect income." In terms of the above statement examine the impact of each of the exogenous events given below on the national income/output level and employment level. For each of the events a specific diagram (provided below) applies. Use the most relevant diagram to substantiate your answer, for example, state, "For 2.1d Diagram E applies." 2.1a). Firms in an economy become pessimistic about the future of the economy and this pessimism causes them to build fewer new factories. (10) 2.1b). The election of a popular president increases consumer confidence in the economy. This induces consumers to save less for the future and consume more today. (10) 2.1c). Restrictions on credit card availability is reduced and the amount of money people choose to hold decreases.

Essentials of Economics (MindTap Course List)
Essentials of Economics (MindTap Course List)
8th Edition
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter15: Measuring A Nation's Income
Section: Chapter Questions
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"The IS-LM model shows how national income is determined in the short run. The model can therefore be used to examine how various economic disturbances affect income." In terms of the above statement examine the impact of each of the exogenous events given below on the national income/output level and employment level. For each of the events a specific diagram (provided below) applies. Use the most relevant diagram to substantiate your answer, for example, state, "For 2.1d Diagram E applies." 2.1a). Firms in an economy become pessimistic about the future of the economy and this pessimism causes them to build fewer new factories. (10) 2.1b). The election of a popular president increases consumer confidence in the economy. This induces consumers to save less for the future and consume more today. (10) 2.1c). Restrictions on credit card availability is reduced and the amount of money people choose to hold decreases.
Transcribed Image Text:"The IS-LM model shows how national income is determined in the short run. The model can therefore be used to examine how various economic disturbances affect income." In terms of the above statement examine the impact of each of the exogenous events given below on the national income/output level and employment level. For each of the events a specific diagram (provided below) applies. Use the most relevant diagram to substantiate your answer, for example, state, "For 2.1d Diagram E applies." 2.1a). Firms in an economy become pessimistic about the future of the economy and this pessimism causes them to build fewer new factories. (10) 2.1b). The election of a popular president increases consumer confidence in the economy. This induces consumers to save less for the future and consume more today. (10) 2.1c). Restrictions on credit card availability is reduced and the amount of money people choose to hold decreases.
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