Question

2001, the Fed pursued an expansionary monetary policy and reduced interest rates. At the same time, President George W. Bush pushed through legislation that lowered Income taxes. "he accompanying IS-LM diagram describes the situation prior to any such policy changes. Initially the economy is at equilibrium point A. .) Using the line drawing tool, draw a new LM curve to illustrate the effect of an expansionary monetary policy. Property abel your curve. 2.) Using the 3-point curve drawing tool, draw a new IS curve to illustrate the effect of the tax cuts. Property label your curve. 3.) Using the point drawing tool, indicate the new equilibrium point. Label your point 'B'. Carefully follow the instructions above and only draw the required objects. In spite of the expansionary monetary and fiscal policies pursued in 2001, U.S. economic growth in late 2001 and early 2002 was very low because O O O A. oil prices in the global market rose very sharply, leading to a double-digit inflation. B. The terrorist attacks on September 11, 2001 caused consumption expenditure to decline sharply and remain depressed c. the monetary and fiscal policies cancelled each other out with very little net positive impact on output and income. D. a sharp decline in nonresidential investment in 2001 led to a recession that the expansionary policies failed to prevent O Clear All Click to select your answer and then click Check Answer. All parts showing MacBook Pro

Answer 1

1) the expansionary policy will lead to better money supply, and shift the graph to right.

2) The tax cut will lead to the Investment increase and hence the graph shifted from IS to IS1

3) The equilbrium is where the LM and IS curve intersect at point B

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