A Use the Keynesian-Cross Model to Illustrate Graphically the Impact

question 14

Essay

a. Use the Keynesian-cross model to illustrate graphically the impact of an increase in the interest rate on the equilibrium level of income. Be sure to label:
i. the axes
ii. the curves
iii. the initial equilibrium values
iv. the direction the curve shifts
v. the terminal equilibrium values

b. Explain in words what happens to equilibrium income as a result of the increase in the interest rate.

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