Question

Q1140 points] Briefly, but not unsatisfactorily, answer the following questions. a) Using the Keynesian cross model where the goods market equilibrium is determined and analyzed, graphically derive the IS curve, and explain each step. Explain what the equilibrium in the goods market implies for the IS curve, i.e., why is the IS curve downward sloping. Also, explain what causes shifts in the IS curve. b) First, based on the analysis of the financial market equilibrium, graphically derive the LM curve. Explain what the LM curve is and explain in detail why it has its particular shape. Explain what causes shifts in the LM curve. c) Suppose that the FED sells a large amount of bonds (say, treasury securities) through open market operations. Graphically illustrate and explain in detail what effect this operation will have on the LM curve and the IS curve. Also explain if it cause a shift in the IS and LM curve? Suppose that the US government reduces government spending (G) to reduce the budget deficit (G-T 0). Graphically illustrate and explain in detail what effect this policy will have on the LM curve and the IS curve. Also explain if it cause a shift in the IS and LM curve

Answer 1

ove)n via Vax nll in lkall ivg sha C in ratt

ique 1 Memo No. Date Tu We Th 2 玉s 2 co ma availafe jer ing ment au Tea Ih Bank

囡囡因 Memo No.- Date Mo Tu We Th Fr Sa Su 1aな 6 LM R. E 2

囡囡因 Mo Tu We Th Fr Sa Bu Memo No. Date c).sl feD s a lan amaunt bovd al dumansl and hepuschase

29 Memo No. Date he uu3 LMz 2M 2 2 TS 1 2 Income

囡囡因 Memo No. Date Ove n £s .an.κ ships his ^islts in al in in I n Came cuv te shi inltuut odd Y

圍困因 MoTuWe Th Fr Sa Su Memo No._ Date 多 2 Ei Fisur4