Chapter 5 - Presidents Speech- plan to reduce deficit =...

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Chapter 5 Slope of IS curve= the interest elasticity of investment. r= (1/d)(I 0 -I) Discount Rate: The interest rate at which eligible depository institutions may borrow funds directly from the Federal Reserve Banks. This rate is controlled by the Federal Reserve and is not subject to trading. In order to raise investment, either increase Government Spending or lower the tax rate. When you lower tax rates, policy becomes more powerful. Such actions shift the curve. GS^ or TR down, shifts right/up. GS down or TR^, shifts left/down.
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Unformatted text preview: Presidents Speech- plan to reduce deficit = expand economy, not increase taxes or reduce Govt spending We assume that the Fed fixes the money supply. Money Demand= Money Supply Md/p= hY-xr As income rises, interest rate rises. LM= Liquidity of Money Together: http://www.staff.ncl.ac.uk/david.harvey/AEF116/2.4/2.4.html A good site for the chapter material Effects of Different Policies Since the Federal Reserve is independent, it can oppose the president and congress if it thinks its best....
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Chapter 5 - Presidents Speech- plan to reduce deficit =...

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