EconHW6 - Economics 2006, Spring 2008, Homework 6 DUE IN...

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Unformatted text preview: Economics 2006, Spring 2008, Homework 6 DUE IN CLASS, Friday, April 11 Assume the economy starts at full employment and is hit by an autonomous (exogenous) shock. Initially the economy moves away from Y , but in the long-run returns to Y . The possibilities are indicated by the following graphs. f f R [1] R [2] IS Y Y Y Y f f R [3] R [4] IS IS Y R Y R f f Figure 1: A leftward shift in the IS curve. The economy is now on the new IS curve (as indicated by the dashed arrow), and in the short-run, the interest rate and output decrease. In the long-run, the economy moves down the new IS curve to (as indicated by the solid arrow). f Y Figure 2: A rightward shift in the IS curve. The economy is now on the new IS curve (as indicated by the dashed arrow). In the short-run, the interest rate and output increase. In the long-run, the economy moves up the new IS curve to Y (as indicated by the solid arrow). f Figure 3: No shift in the IS curve. In the short-run, economy moves down the IS curve (the dashed arrow), the interest rate decreases and output increases. In the long-run the economy moves up the IS curve and returns to Y (as indicated by the solid arrow)....
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This note was uploaded on 04/10/2008 for the course ECON 2006 taught by Professor Rdcothren during the Spring '08 term at Virginia Tech.

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EconHW6 - Economics 2006, Spring 2008, Homework 6 DUE IN...

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