Derive the IS curve and the LM curve graphically (from the Keynesian cross and the theory of liquidity preference, respectively) and denote the equilibrium interest rate and level of income. (b) Analyze the effect of an increase in government spending graphically. What is the crowd effect?
Derive the IS curve and the LM curve graphically (from the Keynesian cross and the theory of liquidity preference, respectively) and denote the equilibrium interest rate and level of income. (b) Analyze the effect of an increase in government spending graphically. What is the crowd effect?
Chapter11: Fiscal Policy
Section: Chapter Questions
Problem 1.1P
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Mf4.
18. INTERACTION BETWEEN FISCAL POLICY AND
(a) Derive the IS curve and the LM curve graphically (from the Keynesian cross and the theory of liquidity preference, respectively) and denote the equilibrium interest rate and level of income.
(b) Analyze the effect of an increase in government spending graphically. What is the crowd effect?
(c) Under the various responses of monetary policy to the fiscal expansion, when is the stimulating effect is maximized and why?
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