In the Keynesian Model,suppose the Fed Sets a Target for the Real

question 119

Essay

In the Keynesian model,suppose the Fed sets a target for the real interest rate.If the IS curve shifts up and to the right,and the Fed wants to keep output unchanged in the short run and the price level unchanged in the long run,what should the Fed do? Use the LR curve to formulate your answer.

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Definitions:

Expected Returns

Expected returns are the anticipated profit or loss from an investment, reflecting the potential financial gains or risks based on historical data and market trends.

Investment Demanded

Investment demanded refers to the total amount of spending by businesses and individuals on capital goods like machinery, buildings, and technology, to increase future productivity.

Interest Rate

The percentage of a sum of money charged for its use, often expressed as an annual percentage.

Uncertainty

The lack of complete certainty in situations, often due to incomplete information, that affects decision-making processes in economics and finance.