Chaifoo Lew - Problem 4 An exogenous increase in price has...

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Chaifoo Lew Economic Hw 312 Problem 1 1[a] Interest rate decrease Income increases Consumption increases Investment increases 1[b] Interest rate increases Income increases Consumption increases Investment decreases 1[c] Interest rate decreases Income decreases Consumption decreases Investment increases 1[d] No effects ----------------------------------------------------------------------------------------------------------- - Problem 2 2[a] Interest rate increases Income increases Consumption increases Investment increases Fed should decrease money supply 2[b] Interest rate increases Income decreases Consumption decreases Investment decreases
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Fed should increase money supply 2[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 The new equilibrium point on the graph after a change in IS curve is R3 and Y3
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Unformatted text preview: Problem 4 An exogenous increase in price has an adverse supply shock that causes the aggregate supply curve to shift upwards. 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 The investment in china took a downfall, as many investors lost a bulk load of money in the stock market, as a global recession took place. The aggregate demand took a plunge also with it going down. Referring to the graphs above, the demand curve moves down or towards the left and as a result the supply curve shifts downwards With an increase in money supply within the economy, we can 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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