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Please help me with this assignment question from Mankiw, Chapter11 Question 1:

According to IS-LM model, what happens in the short run to: (i)interest rate, (ii) income, (iii) consumption, and (iv) investmentunder the following circumstances?

d) The govt. increases govt. purchases and taxes by equalamounts

I was able to answer a, b, and c. Stuck with d)

Thanks

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Ronald
RonaldLv2
28 Sep 2019

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Related questions

Please help me with the assignment question below:

Using the library or the Internet, find some recent projections forthe future path of the U.S. govt. debt as a percentage of GDP. Whatassumptions are made about (i) govt. spending, (ii) taxes, and(iii) economic growth? Do you think these assumptions arereasonable?
If the U.S. experiences a productivity slowdown, how will realitydiffer from this projection?
(Hint: A good place to look at is www.cbo.gov)

Thanks

1. According to the IS–LM model, what happens in the short run to the interest rate, income, consumption, and investment under the following circumstances? Be sure your answer includes an appropriate graph.

a. The central bank decreases the money supply.
Effect of the shock:
Interest rate:
Income:
Consumption:
Investment:

b. The government increases government purchases and taxes. The increase in taxes is twice as big as the increase in government purchases.
Effect of the shock:
Interest rate:
Income:
Consumption:
Investment:




Use the IS-LM model to predict the short-run effects of each of the following shocks on income, the interest rate, consumption, and investment. In each case, explain what the Fed should do to keep income at its initial level. Be sure to use a graph in each of your answers.

a. After the invention of a new high-speed computer chip, many firms decide to upgrade their computer systems.

b. A wave of credit card fraud increases the frequency with which people make transactions in cash.

c. A best-seller titled Retire Rich convinces the public to increase the percentage of their income devoted to saving.

d. The appointment of a new 'dovish' Federal Reserve chair increases expected inflation.

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