Question

In which pair of IS - LM equations which one describes the most effective monetary policy?
 
a. IS: Y = 200-2000i and LM: 0.25Y = 450 + 4000i.
 b. IS: Y = 300-2000i and LM: 0.25Y = 540 + 2000i.
c. IS: 0.25Y = 160 - 2000i and LM: 0.50Y = 200 + 50i.
 d. IS: 0.50Y = 312 - 600i and LM: 0.25Y = 110 + 600i.
e. IS: 0.50Y = 320 - 400i and LM: 0.25Y = 107 + 1500i.

the answer is c why?

In which pair of IS - LM equations which one describes the most effective fiscal policy?
 
a. IS: Y = 640 - 3200i and LM: Y = 400 + 400i.
b. IS: 0.25Y = 160 - 900i and LM: 0.25Y = 100 + 100i.
 c. IS: Y = 175 - 300i and LM: 0.25Y = 155 + 2000i.
d. IS: 0.25Y = 160-500i and LM: Y = 125 + 1000i.
e. IS: Y = 160 - 1500i and LM: 0.50Y = 125 + 500i.
 
 the answer is c why?

Answer 1

A monetary poliy will produce the maximum effect of income when the Kor 13 odation is highly gensive to the interest rate or in good market (represent by 1s eget hue to the interest rete. In ophen c. we have the following 13 equation 8.25y: 160-zowi 4-616 - zowi) |0.25 ly: 640 - Bouw i The coefferent of variable other II equation case. is greater than the Hence, if 13 equchen is 0.259 160-2000; then monetury piling would be more effective 2. A fiscal policy will produce the maximum effect on incame When the relahun is lightly sensitive to the interest rute ur in money market (represent by IM carr) money demand is highly sensitive to the interest rade. la option c, we have the following LH egughn H: SS+ 24c0) 42 (1557 zovi 9-25 620 + door The welfnent of vonable if I'M egucken cas is greater than the other Hence if LM equatien_13_03254 155+€2009.1che hocal policy would be more & effective.