(A)Draw a Figure,using the Keynesian IS-LM Framework,of an Economy in Recession

question 82

Essay

(a)Draw a figure,using the Keynesian IS-LM framework,of an economy in recession.
(b)Now suppose the IS curve shifts up and to the right far enough that if the real interest rate is unchanged,output will increase beyond full employment.If the Fed'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 Fed can act,that the government announces a restrictive fiscal policy,shifting the IS curve down and to the left relative to its position in part (b)What is the Fed 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:

Communist Countries

Nations where the government controls most forms of economic activity and property is commonly owned.

Scarce Resources

Scarce resources are resources that are limited in availability and cannot satisfy all the wants and needs of an economy or population.

Allocate

To distribute resources or duties for a specific purpose according to a plan.

Irrational Behavior

Irrational behavior describes actions or decisions that are not in line with logical or rational thinking, often defying expected outcomes based on standard economic theories.