note_10 - Econ 102 Spring 2011 TA Note for Week 10 Sangyup

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Econ 102 Spring 2011 TA Note for Week 10 Sangyup Choi(rockybalboa@ucla.edu) Application of IS-LM model 1. Suppose there is a temporary increase in G and an incerease in M. The IS-LM model predicts that the real rate of interest will ( uncertain ) and the real output will ( increase ) in the short run Keynesian version. However, in Classical version, it is predicted that the interest rate will ( increase ) and the price level will ( increase ). 2. In recent U.S. crisis, household experienced rapid falls in their wealth ( A 1 ) due to housing market crash. What can you predict to happen in the U.S. economy from Keynesian version of IS-LM model? f) (a) IS curve shift to the right (b) LM curve shift to the left (c) the Fed can in principle reduce any adverse e/ects on real output by simultaneously reducing the nominal money supply (d) the government can reduce any adverse e/ects on real output by simultaneously (e) there will be a fall in output and a rise in the real rate of interest
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note_10 - Econ 102 Spring 2011 TA Note for Week 10 Sangyup

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