a. The LM geld will realize a shift to the left and decrease the measure out of Y if the IR is higher than the ER of the market. The GDP is increasing in value and there will be an increase of savings.. If the IR was below the equilibrium, the opposite of the previously stated would occur. The LM Curve would see a shift to the right, therefore increasing the value of Y. The GDP value would then decrease, due to the guide from Point A to C, and increase employment which would decrease savings. In addition, there is an inverse relationship to both bond prices and interest rates because as one increase in value, the separate decreases, and vice versa.
2. IS-LM Model--Suppose that you have the following equations for the IS-LM model. The following are the equations of the IS-LM model, here including a feature that taxes are not simply given over but depend on income through a tax function, T(Y).
IS Curve Y = C(Y - T(Y)) + 1® + G
LM Curve: M /P + L(r,Y)
a. The Fed Funds rate was near zero in in 2010.
At such low interest rates, it would anticipate that the economy will be stimulated and promote stinting growth. It appears not to be the case. Some could argue that the interest rates are not sensitive to the demand for money. Would an upward sloping LM curve still be applicable?. Explain your reasoning.
The LM curve would not be applicable perceive as though the decision to reduce the federal pecuniary resource is a monetary policy affect the IS curve solely. It would no longer be an upward sloping curve because of the decrease of interest rates has not increased the investment. The LM curve would then become a vertical forming slope.
b. Suppose there is an upward...If you want to get a full essay, order it on our website: Ordercustompaper.com
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