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FIG 38.7-money stock vs interest rate control with a volatile IS curve If the IS curve exhibits instability, pegging the money stock will lead to smaller fluctuations in AD than will pegging the interest rate FIG 39.6- MACRO POLICIES TO CORRECT A DISEQUILIBRIUM Monetary and fiscal policy can help the economy recover from a negative demand shock, so long as are they appropriately timed. Interest rate Interest rate Price level Y3 Y₁ (1) IS/LM Y₂ Y₂ Real national income (ii) AS/AD Y₂ Y, Y National income LRAS IS, Y* National income LM LM, SRAS AD LM 152 BB

FIG 38.7-money stock vs interest rate control with a volatile IS curve If the IS curve exhibits instability, pegging the money stock will lead to smaller fluctuations in AD than will pegging the interest rate FIG 39.6- MACRO POLICIES TO CORRECT A DISEQUILIBRIUM Monetary and fiscal policy can help the economy recover from a negative demand shock, so long as are they appropriately timed. Interest rate Interest rate Price level Y3 Y₁ (1) IS/LM Y₂ Y₂ Real national income (ii) AS/AD Y₂ Y, Y National income LRAS IS, Y* National income LM LM, SRAS AD LM 152 BB

Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
8th Edition
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter34: The Influence Of Monetary And Fiscal Policy On Aggregate Demand
Section: Chapter Questions
Problem 4CQQ
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Economics

explain both figures individually and under seperate heading. mention what is happeninh in both the graphs and why there is shift in the curves. how the curves effect the variables mentioned in x and y axis. give a detailed explaination and step wise.

FIG 38.7-money stock vs interest rate control with a volatile IS curve If the IS curve exhibits instability, pegging the money stock will lead to smaller fluctuations in AD than will pegging the interest rate FIG 39.6- MACRO POLICIES TO CORRECT A DISEQUILIBRIUM Monetary and fiscal policy can help the economy recover from a negative demand shock, so long as they appropriately are timed. Interest rate Interest rat Price level Y3 Y₁ (1) IS/LM Y₂ Y₁ Real national income (ii) AS/AD Y₂ Y, Y* National income LRAS IS, Y, Y* National income LM LM, IS SRAS AD AD₁ LMO 152 BB
Transcribed Image Text:FIG 38.7-money stock vs interest rate control with a volatile IS curve If the IS curve exhibits instability, pegging the money stock will lead to smaller fluctuations in AD than will pegging the interest rate FIG 39.6- MACRO POLICIES TO CORRECT A DISEQUILIBRIUM Monetary and fiscal policy can help the economy recover from a negative demand shock, so long as they appropriately are timed. Interest rate Interest rat Price level Y3 Y₁ (1) IS/LM Y₂ Y₁ Real national income (ii) AS/AD Y₂ Y, Y* National income LRAS IS, Y, Y* National income LM LM, IS SRAS AD AD₁ LMO 152 BB
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