Problem Set 2-answers - ECON 202 MACROECONOMIC THEORY...

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ECON 202 MACROECONOMIC THEORY Problem Set 2 – Answer Key MULTIPLE CHOICE 1)A 6)E 11)E 16)A 21)A 2)E 7)B 12)B 17)D 22)C 3)A 8)D 13)D 18)A 23)C 4)A/C 9)E 14)A 19)B 24)C 5)D 10)A 15)C 20)D 25)A ESSAY QUESTIONS 26)Changes in the interest rate do cause changes in investment, demand, and output. However, they do not cause shifts of the IS curve. Changes in the interest rate cause movements along the IS curve. 27) After the Global Economic Crises in 2008-2009 most of the world economies pursued expansionary monetary policy and expansionary fiscal policy to steer out of the recession. Expansionary monetary policy shifts the LM curve to the right. This shift is represented by LM2 curve on graph. The expansionary fiscal policy shifts the IS curve to the right which is represented by IS2 curve. When both policies are applied, output increases from Y1 to Y2. However the effect of these policies on interest rate is ambigious. If shift in IS is stronger than the shift in LM, equilibrium interest rate will increase, vice versa. Even it may remain unchanged if both shifts
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This note was uploaded on 01/05/2012 for the course ECON 202 taught by Professor Tunc during the Spring '10 term at Middle East Technical University.

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Problem Set 2-answers - ECON 202 MACROECONOMIC THEORY...

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