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Use IS—LM diagram to describe the short- run and Long-run effects of the following changes on national income, the interest rate, the price level, consumption, investment, and real money balances a. An increase in the money supply. b. An increase government purchases. c. An increase in taxes d. The opposite actions in all the above.?
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Use IS—LM diagram to describe the short- run and Long-run effects of t...
Effect of Changes on National Income, Interest Rate, Price Level, Consumption, Investment, and Real Money Balances
An Increase in the Money Supply:
- Short-run effects: In the IS-LM diagram, an increase in the money supply shifts the LM curve to the right, leading to lower interest rates. This results in higher national income as investment increases due to lower borrowing costs. The price level may also increase due to higher aggregate demand, leading to higher consumption and investment.
- Long-run effects: In the long run, the increase in the money supply may lead to inflation as prices adjust to higher demand. Real money balances decrease as prices rise, affecting consumption decisions. Investment may also be impacted as interest rates adjust to the new equilibrium level.
An Increase in Government Purchases:
- Short-run effects: An increase in government purchases shifts the IS curve to the right, leading to higher national income. This increase in aggregate demand may lead to higher interest rates and inflation, impacting consumption and investment decisions.
- Long-run effects: In the long run, the increase in government purchases may lead to crowding out of private investment, as higher government spending competes for resources. This can lead to higher interest rates, impacting consumption and investment decisions.
An Increase in Taxes:
- Short-run effects: An increase in taxes shifts the IS curve to the left, leading to lower national income. This decrease in aggregate demand may lead to lower interest rates and lower inflation, affecting consumption and investment decisions.
- Long-run effects: In the long run, the increase in taxes may lead to lower consumption and investment as households and firms adjust to higher tax burdens. This can lead to lower national income and higher saving rates.
The Opposite Actions in All the Above:
- Short-run effects: The opposite actions in all the above scenarios would lead to opposite effects on national income, interest rates, price level, consumption, investment, and real money balances.
- Long-run effects: In the long run, the opposite actions would result in adjustments to reach a new equilibrium in the economy, impacting various economic variables based on the specific changes made.
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Use IS—LM diagram to describe the short- run and Long-run effects of the following changes on national income, the interest rate, the price level, consumption, investment, and real money balances a. An increase in the money supply. b. An increase government purchases. c. An increase in taxes d. The opposite actions in all the above.?
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Use IS—LM diagram to describe the short- run and Long-run effects of the following changes on national income, the interest rate, the price level, consumption, investment, and real money balances a. An increase in the money supply. b. An increase government purchases. c. An increase in taxes d. The opposite actions in all the above.? for Economics 2024 is part of Economics preparation. The Question and answers have been prepared according to the Economics exam syllabus. Information about Use IS—LM diagram to describe the short- run and Long-run effects of the following changes on national income, the interest rate, the price level, consumption, investment, and real money balances a. An increase in the money supply. b. An increase government purchases. c. An increase in taxes d. The opposite actions in all the above.? covers all topics & solutions for Economics 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Use IS—LM diagram to describe the short- run and Long-run effects of the following changes on national income, the interest rate, the price level, consumption, investment, and real money balances a. An increase in the money supply. b. An increase government purchases. c. An increase in taxes d. The opposite actions in all the above.?.
Use IS—LM diagram to describe the short- run and Long-run effects of the following changes on national income, the interest rate, the price level, consumption, investment, and real money balances a. An increase in the money supply. b. An increase government purchases. c. An increase in taxes d. The opposite actions in all the above.? for Economics 2024 is part of Economics preparation. The Question and answers have been prepared according to the Economics exam syllabus. Information about Use IS—LM diagram to describe the short- run and Long-run effects of the following changes on national income, the interest rate, the price level, consumption, investment, and real money balances a. An increase in the money supply. b. An increase government purchases. c. An increase in taxes d. The opposite actions in all the above.? covers all topics & solutions for Economics 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Use IS—LM diagram to describe the short- run and Long-run effects of the following changes on national income, the interest rate, the price level, consumption, investment, and real money balances a. An increase in the money supply. b. An increase government purchases. c. An increase in taxes d. The opposite actions in all the above.?.
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