rabia hw 312

rabia hw 312 - shock, that causes the aggregate supply...

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Rabia Chaudhry HW 2 – Econ 312 3/6/2010 Problem 1 1) A: Interest rate decrease Income increases Consumption increases Investment increases B: Interest rate increases Income increases Consumption increases Investment decreases C: Interest rate decreases Income decreases Consumption decreases Investment increases D: No effects Problem 2 2) a: Interest rate increases Income increases Consumption increases Investment increases Fed should decrease money supply b: Interest rate increases Income decreases Consumption decreases Investment decreases
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Rabia Chaudhry HW 2 – Econ 312 3/6/2010 Fed should increase money supply c: Interest rate decreases Income decreases Consumption decreases Investment increases Fed should increase money supply Problem 3 The equilibrium point on the graph is R1 and Y1 as we can see that both the IS Curve and the LM curve intersect The new equilibrium point on the graph after a change in IS curve is R3 and Y3
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Rabia Chaudhry HW 2 – Econ 312 3/6/2010 Problem 4 An exogenous increase in price causes an adverse supply
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Unformatted text preview: shock, that causes the aggregate supply curve to shift upwards there by creating an increase in output and price also goes up. Rabia Chaudhry HW 2 Econ 312 3/6/2010 If there is a decrease in exogenous, it creates a decrease in the aggregate demand curve, as a result of which fixed cost remains same and output falls. Problem 5 a) The aggregate demand took a plunge and we saw a downfall in the stock market. Referring to the graphs above, the demand curve moves down or towards the left and as a result the supply Rabia Chaudhry HW 2 Econ 312 3/6/2010 curve shifts downwards. There by causing the stock market and investment to go down in china. b) We look forward to seeing a decrease in money supply, which in return causes the aggregate demand curve to increase and shift outwards and this causes a change in the fixed cost and output goes up....
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rabia hw 312 - shock, that causes the aggregate supply...

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