Using the IS-LM Model for a Small Open Economy,analyze the Effects

question 76

Essay

Using the IS-LM model for a small open economy,analyze the effects of the following events on output and the real interest rate in the short run and the long run.In each case,discuss the differences between the classical and the Keynesian models.
a.A rise in taxes.
b.A boom in the economy of the major trading partner.
c.The central bank follows a contractionary monetary policy.

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Definitions:

Conscious-Unconscious

Refers to the distinction between mental processes and contents that are within an individual's awareness and those that are not.

Force Field Theory

A concept developed by Kurt Lewin, suggesting that situational factors ("forces") can influence individuals' behavior by either facilitating or hindering their intentions.

Intrinsic Value

The inherent worth of something, independent of its utility or function.

Stimulus-Response Units

Basic building blocks of behaviorist theories where a specific stimulus leads to a predictable behavioral response.