2. Use the IS-LM model to predict the short-run effects of each of the following shocks on income, the interest rate, consumption, and investment. In each case, explain what the Fed should do to keep income at its initial level. Be sure to use a graph in each of your answers. a. After a new high-speed computer chip is invented, many firms decide to upgrade their computer systems. b. A wave of credit card fraud increases the frequency with which people make transactions in cash. c. A bestseller titled Retire Rich convinces the public to increase the percentage of their income devoted to saving. d. The appointment of a new dovish Fed chair increases expected inflation.
2. Use the IS-LM model to predict the short-run effects of each of the following shocks on income, the interest rate, consumption, and investment. In each case, explain what the Fed should do to keep income at its initial level. Be sure to use a graph in each of your answers. a. After a new high-speed computer chip is invented, many firms decide to upgrade their computer systems. b. A wave of credit card fraud increases the frequency with which people make transactions in cash. c. A bestseller titled Retire Rich convinces the public to increase the percentage of their income devoted to saving. d. The appointment of a new dovish Fed chair increases expected inflation.
Chapter24: Fiscal Policy
Section: Chapter Questions
Problem 15P
Related questions
Question
![2. Use the IS-LM model to predict the short-run effects of
each of the following shocks on income, the interest rate,
consumption, and investment. In each case, explain what
the Fed should do to keep income at its initial level. Be sure
to use a graph in each of your answers.
a. After a new high-speed computer chip is invented, many
firms decide to upgrade their computer systems.
b. A wave of credit card fraud increases the frequency with
which people make transactions in cash.
c. A bestseller titled Retire Rich convinces the public to
increase the percentage of their income devoted to
saving.
d. The appointment of a new dovish Fed chair increases
expected inflation.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F4e4b294e-bb50-4d90-a49d-be6f7c3ce8b7%2F48388cf7-0b4b-4154-9db3-cd3f2cb901d5%2F5y0demwu_processed.jpeg&w=3840&q=75)
Transcribed Image Text:2. Use the IS-LM model to predict the short-run effects of
each of the following shocks on income, the interest rate,
consumption, and investment. In each case, explain what
the Fed should do to keep income at its initial level. Be sure
to use a graph in each of your answers.
a. After a new high-speed computer chip is invented, many
firms decide to upgrade their computer systems.
b. A wave of credit card fraud increases the frequency with
which people make transactions in cash.
c. A bestseller titled Retire Rich convinces the public to
increase the percentage of their income devoted to
saving.
d. The appointment of a new dovish Fed chair increases
expected inflation.
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