According to the keynesian is lm model what is the

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1. According to the Keynesian IS-LM model, what is the effect of each of the following on output, the real interest rate, employment, and the price level? Distinguish between the short run and the long run. In Figures 11.15 and 11.16, point A is the starting point, point B shows the short-run equilibrium after the change, and point C shows the long-run equilibrium after the change.
Figure 11.15 Figure 11.16
ECON 3040 Homework 6 Solutions 10 a.Increased tax incentives for investment (the tax breaks for investment are offset by lump-sum tax increases that keep total current tax collections unchanged). In Figure 11.15, the increase in tax incentives increases investment, shifting the IS curve up and to the right from IS1 to IS2 in Figure 11.15(a), and shifting the AD curve from AD1 to AD2 in Figure 11.15(b). The short-run equilibrium is at point B. Output increases, the real interest rate increases, employment increases, and the price level is unchanged. To restore long-run equilibrium, the price level rises, shifting the LM curve from LM1 to LM2 Figure 11.15(a) and the short-run aggregate supply curve from SRAS1 to SRAS2 in Figure 11.15(b). The long-run equilibrium is at point C. Compared to the starting point, output is the same, the real interest rate is higher, employment is the same, and the price level is higher. b.Increased tax incentives for saving [as in Part (a), lump-sum tax increases offset the effect on total current tax collections]. In Figure 11.16, the increase in tax incentives increases savingshifting the IS curve from IS1 to IS2 in Figure 11.16(a), and shifting the AD curve from AD1 to AD2 in Figure 11.16(b). The short-run equilibrium is at point B. Output decreases, the real interest rate decreases, employment decreases, and the price level is unchanged. To restore long-run equilibrium, the price level declines, shifting the LM curve from LM1 to LMin Figure 11.16(a) and the short-run aggregate supply curve from SRAS1 to SRAS2 in Figure 11.16(b). The long-run equilibrium is at point C. Compared to the starting point, output is the same, the real interest rate is lower, employment is the same, and the price level is lower. c.A wave of investor pessimism about the future profitability of capital investments. A wave of investor pessimism reduces investment. This shifts the IS curve down and to the left and the AD curve down and to the left, having the same result as in problem part (b). d.An increase in consumer confidence, as consumers expect that their incomes will be higher in the future. An increase in consumer confidence increases consumption spending, shifting the IS curve up and to the right and the AD curve up and to the right, with the same result as in problem part (a). e.Financial deregulation allows banks to pay a higher interest rate on checking accounts. In Figure 11.17, when banks pay a higher interest rate on checking accounts, the demand for money rises, shifting the LM curve up and to the left from LM1 to LM2 in Figure 11.17(a). As a result, the AD curve shifts down and to the left from AD1 to AD2 in Figure 11.17(b). The new short-run equilibrium occurs at point B, where output is lower, the real interest rate is higher, employment is lower, and the price level is unchanged. In the long run, the price level decreases to shift the LM curve from LM2 to LM3, which is the same as LM1
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