contractionary fiscal policy :
What is the IS-LM Model:
Effect of Fiscal Policy:
4. Suppose policymakers want to raise investment but keep output constant. In the IS-LM model, wh...
4. (25%) Suppose that policy makers want to raise investment but keep out- put and consumption unchanged. (a) Analyze whether - and if so, how - these targets can be achieved using a combination of fiscal and monetary policy. i. what must happen to interest rates to raise investment if output is unchanged? ii. what must happen to government spending and taxes to keep output and consumption unchanged if investment increases? (b) Illustrate the analysis using an IS-LM diagram
Suppose that policymakers want to decrease the fiscal deficit. 3. Suppose that policymakers want to decrease the fiscal deficit A. Use an IS-LM graph to illustrate the effect on equilibrium GDP and interest rates if government spending is decreased, explaining briefly what happens. B. Use an IS-LM graph to illustrate the effect on equilibrium GDP and interest rates if taxes are increased, explaining briefly what happens. C. Suppose the policymakers want to reduce the fiscal deficit without decreasing GDP. Is...
Suppose that North Korea has a closed economy and that its government wants to raise investment but keep output constant (i.e. no change in Y but with a higher I). In the closed economy IS-LM model, what mix of monetary and fiscal policy will achieve this goal? Use a graph to support your answer.
Suppose policy makers want to increase net exports (NX) and keep output (Y) constant. Which of the following policies would most likely achieve this? A. an increase in government spending B. a real depreciation C.an increase in government spending and a decrease in the real exchange rate D. a decrease in the real exchange rate and a tax increase
Question 3: Using a policy mix Suppose that policymakers want to increase output (Y) while keeping the interest rate constant. What mix of fiscal and monetary policy is needed to meet these objectives? Show a figure that supports your answer, and briefly explain your figure (which curves shift and why, and the effect on equilibrium GDP)
IS-LM What combination of policies would best reduce inflation? a) Increase taxes, sell government bonds b) Decrease taxes, buy government bonds c) Decrease taxes, lower the reserve ratio d) Decrease government spending, lower the discount rate e) Increase government spending, raise the discount rate Use the IS-LM model. Your policy instruments are: Taxes, Government Spending, and the Money Supply. Describe a policy or set of policies that achieve the following objectives. Your answer should include a diagram to show how...
1. Use the IS-LM model to show how an unexpected inflation could result in a higher short-run GDP. 2. Use the IS-LM model to show how an expected inflation could result in a higher short-run GDP. Explain using an IS-LM diagram. Make sure you explain in words what happens in your diagram. 3) Suppose a closed economy is initially in the long run equilibrium. Suppose the monetary base of this economy is $100 million, of which people carry $10 million...
1. A. Suppose in an economy, there is an exogenous fall in investment spending due to the burst of a housing bubble. Answer the following questions using the IS-LM-FX model. Which schedule shifts in the IS-LM model on impact? ii. i. What happens to the equilibrium output, interest rate, and exchange rate after this change? B. Suppose that following the decline in investment spending, the central bank decides to pursue an output stabilization policy. Answer the following questions comparing the...
2. (1,75 p.) Consider a closed economy with fixed prices and wages. Suppose the consumption function takes the form C-400 +0.2(Y-T), the invest function is I- 170-10i. Central Bank sets interest rates that results in the following LM curve i-0.02Y-10. Initially G T-100. Suppose that govemment controls both fiscal and monetary policy. The government wishes to increase output by 10% but to keep the budget in balance and investment unchanged. Describe in detail the combination of policies (specify the instruments...
use the IS-LM model to answer this question. Suppose there is a simultaneous increase in government spending and reduction in money supply. Explain what effect this particular policy mix will have on ouput and interest rate. Base on your analysis, do we know with certainty what effect this policy mix will have on investment? Explain.