section+15 - ECON 101B: Section 15 Handout Date: 03/09/2011...

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ECON 101B: Section 15 Handout Date: 03/09/2011 Question 1 Use the IS-LM model to show the e/ects of the following shocks on Y and r , and determine what happens to C , I , and the unemployment rate. Analyze the shocks separately. 1. a boom in the stock market that makes consumers wealthier. 2. after a wave of credit card fraud, consumers using cash more frequently in transactions. Question 2 Assume that the economy is at full employment. Suppose the Fed increases M . Draw the IS-LM and AD-AS diagrams, and show the short-run e/ects on your graphs. Also, show what happens in the transition from the short run to the long run. How do the new long-run equilibrium values of the endogenous variables compare to their initial values? Question 3 Assume that the economy is at full employment. The government decides to cut taxes to give the economy an extra boost. 1. Show the short run e/ect of this tax cut using the IS-LM model. What will happen to output and the interest rate? 2. What will happen in the long run?
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This note was uploaded on 10/04/2011 for the course ECON 101b taught by Professor Staff during the Spring '08 term at Berkeley.

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section+15 - ECON 101B: Section 15 Handout Date: 03/09/2011...

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