Homework Answers
The interest rate is r3.
When the IS curve shifts, the interest rate rises to r2.
To keep the interest rate at r3,the LM curve needs to shift out to LM2.
Hence the money supply should increase.
The correct option is therefore
a. The Federal Reserve should increase the money supply.
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related in the goods and related 1. Equilibrium levels of income and interest rates are services market, and equilibrium levels of income and interest rates are in the market for real money balances. A) positively; positively B) positively; negatively C) negatively; negatively D) negatively; positively 2. Exhibit: IS-LM Fis cal Policy Interest rate, r LM IS3 IST IS Y2 Y Income, Output, Y Based on the graph, starting from equilibrium at interest rate ri and income Yı, an increase in...
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