3. Using the Keynesian IS-LM framework for a closed economy, analyze the effects of each of the following measures/shifts/shocks on the equilibrium levels of aggregate income and interest rate. Illustrate your answer for each of the three cases (A, B and C) with properly labeled diagram. Do not combine the three events; answer each one separately. А. The Fed decreases the discount rate Investment becomes less sensitive to interest rate (i.e., interest elasticity of investment decreases) В. Money demand becomes less sensitive to interest rate (i.e., interest elasticity of money demand decreases)

3. Using the Keynesian IS-LM framework for a closed economy, analyze the effects of each of the following measures/shifts/shocks on the equilibrium levels of aggregate income and interest rate. Illustrate your answer for each of the three cases (A, B and C) with properly labeled diagram. Do not combine the three events; answer each one separately. А. The Fed decreases the discount rate Investment becomes less sensitive to interest rate (i.e., interest elasticity of investment decreases) В. Money demand becomes less sensitive to interest rate (i.e., interest elasticity of money demand decreases)

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter17: Capital And Time

Section: Chapter Questions

Problem 17.2P

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Suppose that the real interest rate is 6%. Next, assume that some factors changes, such that the expected rate of return, declines by two percentage points at each prospective level of investment. Assuming no change in the real interest rate, by how much and in what direction will the investment change? which of the following might cause this change: (a) a decision to increase inventories; (b) an increase in excess production capacity.
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