ECO202Y1 Quiz: eco202 assignment 6 and self generated solutions.pdf
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1- consider an economy that has been in equilibrium for a long time, so its is and lm curves are intersecting each other at potential output level, ybar. Also, suppose in this economy, investment is only a function of the interest rate (not a function of income, y). Disclaimer: these solutions are just guidelines for you, and may not include a complete solution for the questions and problems in your homework, as you must present in your assignments and/or exams. In your solutions you must show your work, and demonstrate your line of thinking clearly. Please, always check my calculations for unintentional typos or miscalculations. 1)- an increase in the oil price causes a jump in the price level. Lm curve shifts up from lm1 to lm2 due to the increase in price level ( equilibrium moves from a to b). Given higher interest rate, investment goes down, and so does demand, and finally income/output, and consumption.
