EBK MACROECONOMICS
10th Edition
ISBN: 9780134896571
Author: CROUSHORE
Publisher: VST
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Chapter 11, Problem 1AP
To determine
To Evaluate: Effects on different economic variable under different condition using IS-LM model.
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The Great Recession was characterized by a collapse in housing prices, and a subsequent crunch in credit. Begin with the market for bank loans in equilibrium. A credit crunch occurs when the supply of bank loans contract leading to higher interest rates on bank loans. As interest rates on bank loans increase, what happens to durable consumption and planned investment, and why? These changes alter the Keynesian PAE model.
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