Tax cut increases Consumers' disposable income. Increase in disposal income leads to increase in consumption spending which is a part of investment spending. This shifts IS curve rightward to IS'. New equilibrium reaches at e' where equilibrium interest rate and real gdp are higher.
5. Show the effects of a tax cut in the IS-LM model. Be sure to show...
Use the classical (RBC) IS-LM-FE model to show the effects on the economy of a temporary decrease in government spending. You should show the impact on the real wage, employment output, the real interest rate, consumption, investment, and the price level Use the classical (RBC) IS-LM-FE model to show the effects on the economy of a temporary decrease in government spending. You should show the impact on the real wage, employment output, the real interest rate, consumption, investment, and the...
Figure 5-7: LM LM IS Y, Output, Y Using figure 5.7. show how the effects of an increase in taxes. Clearly label your graph. [1 mark]
1. Use the IS-LM model to show how an unexpected inflation could result in a higher short-run GDP. 2. Use the IS-LM model to show how an expected inflation could result in a higher short-run GDP. Explain using an IS-LM diagram. Make sure you explain in words what happens in your diagram.
You will need to analyse the IS-LM model algebraically. Setting up a closed economy for the short-run model, the market for goods and services is given as Yz = Ct + It +G+ whereby - Ct ac + c(V– at)) ⓇY+ - It (a dj – 5(r+ – 7)) ⓇY -) * - G+ = ag XYZ a. To obtain the IS curve, solve for short-run output, Ķz. b. How does the slope of the IS curve depend on the...
1. Use the IS-LM model to show how an unexpected inflation could result in a higher short-run GDP. 2. Use the IS-LM model to show how an expected inflation could result in a higher short-run GDP. Explain using an IS-LM diagram. Make sure you explain in words what happens in your diagram. 3) Suppose a closed economy is initially in the long run equilibrium. Suppose the monetary base of this economy is $100 million, of which people carry $10 million...
3 2. Use the IS-LM model to show how an expected inflation could result in a higher short-run GDP. Explain using an IS-LM diagram. Make sure you explain in words what happens in your diagram.
7. Graph the effects of fiscal consolidation in the IS-LM-PC model when the econ- omy is at the zero lower bound. Explain the effect that expectation formation will have on the outcome. (10 pts)
Using the IS/LM diagram, show graphically the effects of an increase in full-employment output on the long-run stationary equilibrium of Mc Callum’s mode
Show the short run effects of a decrease in the demand for goods and services caused by a pandemic. Suppose the economy is an open economy that is on a flexible exchange rate. To answer this question, draw the following five diagrams: 1. The goods market, [3 marks] 2. The money market, [3 marks] 3. The IS-LM curves, [3 marks] 4. The interest parity condition, and [3 marks] 5. The AS-AD curves. [3 marks]
For each of the following situations, use the IS-LM-FX model to illustrate the effects of the shock. For each case, state the effect of the shock (increase, decrease, no change, or ambiguous) on the following variables: Y, i, E, C, I, TB. Assume the government allows the exchange rate to float. a. Lump-sum taxes increase. b. Foreign income increases. c. Investors expect an appreciation of the home currency d. The money supply decreases.