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1. Use the IS-LM model to illustrate the short run impact of this change in money...

1. Use the IS-LM model to illustrate the short run impact of this change in money supply on the equilibrium level of GDP and interest rate. Use a diagram and also explain in words. Make sure you show which curve shifts, and in which direction.

2. Assuming the fiscal and monetary policymakers do not do anything, what will be the long run level of GDP and interest rate? Use the same diagram you already drew to answer question 1. Make sure you show which curves shift, in what direction and what causes the shift.

3. Assuming the government decides to stabilize output, what kind of fiscal policy should it use? Illustrate the effect on GDP and interest rate in the same diagram you drew to answer questions 1 and 2.

4. Assuming the government decides to stabilize the interest rate, what kind of fiscal policy should it use? Illustrate the effect on GDP and interest rate in the same diagram you drew to answer questions 1, 2 and 3.

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