Question 4. (1) As discussed, the IS-LM model can explain the impact of fiscal policy to aggregate output (Y). For the IS curve, government purchase (G) is an endogenous or exogenous variable? How a lower government purchase G would affect Y? How to illustrate the change graphically? (2) For the LM curve, use your language to explain how the supply of real money balance is related to total money supply (M) and the price level (P). For M and P, which one is endogenous or exogenous to the LM model? (3) Use your language to explain how to derive the aggregate demand (AD) curve from the IS- LM model? How the AD curve is sloped and why?

Question 4. (1) As discussed, the IS-LM model can explain the impact of fiscal policy to aggregate output (Y). For the IS curve, government purchase (G) is an endogenous or exogenous variable? How a lower government purchase G would affect Y? How to illustrate the change graphically? (2) For the LM curve, use your language to explain how the supply of real money balance is related to total money supply (M) and the price level (P). For M and P, which one is endogenous or exogenous to the LM model? (3) Use your language to explain how to derive the aggregate demand (AD) curve from the IS- LM model? How the AD curve is sloped and why?

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter24: Fiscal Policy

Section: Chapter Questions

Problem 15P

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