2. Assume that there is a negative monetary shock causes the decreasing in money supply. a) Please use IS-LM analysis and explain the effect. b) Based on case 2(a), please use IS-LM analysis to show how fiscal policy can recover the economy back to initial level of income.

2. Assume that there is a negative monetary shock causes the decreasing in money supply. a) Please use IS-LM analysis and explain the effect. b) Based on case 2(a), please use IS-LM analysis to show how fiscal policy can recover the economy back to initial level of income.

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter16: The Influence Of Monetary And Fiscal Policy On Aggregate Demand

Section: Chapter Questions

Problem 8PA

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Question

2. Assume that there is a negative monetary shock causes the decreasing in money supply.
a) Please use IS-LM analysis and explain the effect.
b) Based on case 2(a), please use IS-LM analysis to show how fiscal policy can recover
the economy back to initial level of income.

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