Use the Classical IS-LM Model to Show the Effects of a Temporary

question 48

Essay

Use the classical IS-LM model to show the effects of a temporary decrease in government purchases on the equilibrium levels of output,the real interest rate,employment,the real wage,and the price level.

---

Definitions:

Natural Logarithm

A mathematical function that calculates the time needed to reach a certain level of growth, based on the constant e (approx. 2.71828).

u(X,Y)

A utility function representing the satisfaction a consumer gets from consuming quantities of goods X and Y.

MRS

Marginal Rate of Substitution, an economic concept that describes the rate at which a consumer is willing to give up one good in exchange for another good while maintaining the same level of utility or satisfaction.

Market Basket

A selected set of goods and services used to track changes in prices and measure inflation over time, reflecting the typical consumer's spending.