Use the IS-LM model to answer these questions. Make sure to clearly label the X- and Y-axis.
You should also clearly indicate the initial equilibrium and the new equilibrium after the
changes described in the question.
To describe changes you can use the following symbols:
Effect is ambiguous: ?
Faced with high costs for following strict health and safety measures during the COVID-
19 pandemic, supermarkets and other stores have increased their prices dramatically. At
the same time, households are worried about the future and have increased their savings.
Based on the results of your graph, explain how these changes will affect the interest rate
(r), investment (I), output (Y), and savings (S).
In a country where investment does not depend on the interest rate, the Central Bank
purchases government securities in the open market.
Based on the results of your graph, explain how this policy will affect the interest rate (r),
investment (I), output (Y), and consumption (C).