In a neoclassical model, use the IS-LM to analyze the effect of a permanent money supply...
In a neoclassical model, use the IS-LM to analyze the effect of a permanent money supply on income, interest rate, and price level.
Homework Answers
An increase in the permanent money supply will shift the LM curve to the right, initially.
As LM curve shifts to the right, interest rate falls and income increases.
In the long run, as interest rates fall, investment and consumption spending increases, shifting the AD curve to the right.
This will lead to a drastic increase in the price level.
As it can be seen in the graph above,
Income will increase
Price level will increase
Interest rates will decrease
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In a neoclassical model, use the IS-LM to analyze the effect of
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Please box answers! Thank
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Please box answers! Thank
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