Question TWO An economy is described the following 2 equations: Y = C (Y – T) + I (r) + G .1 M/P = L(r, Y) %3D .2 a) If for this economy, the central bank increases money supply, explain what happens to: i. The interest rate ii. Income iii. Consumption iv. Investment b) If, for this economy, the government increases government purchases, explain what happens to: i. The interest rate ii. Income ii. Consumption iv. Investments

Question TWO An economy is described the following 2 equations: Y = C (Y – T) + I (r) + G .1 M/P = L(r, Y) %3D .2 a) If for this economy, the central bank increases money supply, explain what happens to: i. The interest rate ii. Income iii. Consumption iv. Investment b) If, for this economy, the government increases government purchases, explain what happens to: i. The interest rate ii. Income ii. Consumption iv. Investments

Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781305971509

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter21: The Influence Of Monetary And Fiscal Policy On Aggregate Demand

Section: Chapter Questions

Problem 5CQQ

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