ADraw a Figure,using the Keynesian IS-LM Framework,of an Economy in Recession

question 64

Essay

a.Draw a figure,using the Keynesian IS-LM framework,of an economy in recession.
b.Now suppose the IS curve shifts to the right far enough that if the real interest rate is unchanged,output will increase beyond full employment.If the Central Bank's goal is to move output to its full-employment level,what must happen to the real interest rate? What is the effect on the price level?
c.Suppose,before the Bank can act,that the government announces a restrictive fiscal policy,shifting the IS curve to the left relative to its position in part (b).What is the Bank likely to do (relative to what it would do if fiscal policy wasn't restrictive)if its goal is to target full-employment output? What happens to the real interest rate relative to what it is in part (b)?

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Definitions:

Means

Refers to the arithmetic averages of data sets, representing the central or typical value in those sets.

Interaction Effect

The effect on a dependent variable that arises from the combination of two or more variables, different from the sum of their separate effects.

Main Effect

The direct influence of an independent variable on a dependent variable in an experiment.

Simple Effect

A statistical term that describes the effect of one factor at a specific level of another factor within an ANOVA test.