Using either the Keynesian cross model or the market for real money balances (whichever one is...
Using either the Keynesian cross model or the market for real money balances (whichever one is appropriate), please illustrate what happens under the following circumstance. Then illustrate what happens using the IS-LM model. *Note: please place the graphs side-by-side. Finally, comment on what happens to income/output and the interest rate.
A. Business confidence rises and as a result, investment in capital goods increases.
Homework Answers
Increase in business confidence and thus increase in investment in capital leads to increase in aggregate expenditure due to AE which includes investment spending shifts upwards and new equilibrium is reached at e' where real gdp is higher at Y'*.
In the IS-LM graph, IS curve shifts to the right as IS includes investment spending as one of its components. At new equilibrium e', real gdp and interest rate are both higher at Y'* and i' respectively.
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Using either the Keynesian cross model or the market for real
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Please box answers! Thank
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solve using attached graphs if neccesary
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2. Practice with the Keynesian model-graphs Show using a graph how the following shocks would affect equilibrium output. (Which parameters in the Keynesian model change? How does that shift the expenditure schedule? What happens to output as a result?) (a) Consumer confidence declines (b) The stock market booms (c) A decline in interest rates increases both consumption and investment demand
Please box answers! Thank
you.
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solve using attached graphs if neccesary
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