Study Guide (Chap 6 and 7) - Study Guide(Chapter 6 and 7 1 Explain the Keynesian theory of interest-rate determination How is it different from the

# Study Guide (Chap 6 and 7) - Study Guide(Chapter 6 and 7 1...

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Study Guide (Chapter 6 and 7) 1)Explain the Keynesian theory of interest-rate determination. How is it different from the classical theory of interest rate? 2)Explain why the IS schedule is negatively sloped in the IS-LM model and the LM schedule is positively sloped 3)Diagrammatically derive the IS schedule and the LM schedule. 4)Mathematically derive the equation for the IS schedule and LM schedule (for a simple closed economy with taxes). Also, mathematically derive the slopes of the IS and LM curves and verify whether the IS curve is negatively sloped and the LM curve is positively sloped. 5)From the equations of the IS and LM curves (for a simple closed economy with taxes) mathematically derive the IS-LM equilibrium. 6)What factors determine the slope of the IS schedule? i.e. What factors determine whether the IS curve is steep or flat? Also, explain what factors cause a shift in the IS curve and in which direction (left or right) and why. 7)What factors determine the slope of the LM curve? i.e. What factors determine