Professional Writers
We assemble our team by selectively choosing highly skilled writers, each boasting specialized knowledge in specific subject areas and a robust background in academic writing
Order For Similar Custom Papers & Assignment Help Services
Fill the order form details - writing instructions guides, and get your paper done.
Posted: July 13th, 2022
Output and Interest Rate Assignment | Homework For You
My problem and answer is posted below. My question is; Is output ambiguous and is the relation to investment then also ambiguous?
Problem: Use the IS-LM model to answer this question. Suppose there is a simultaneous increase in government spending and reduction in the money supply. Explain what effect this particular policy mix will have on output and the interest rate. Based on your analysis, do we know with certainty what effect this policy mix will have on investment? Explain.
Answer:
Taking each piece independently:
An increase in government spending would be a fiscal expansion that would shift the IS curve to the right. The LM curve would not shift. With the shift right in the IS curve, output increases and the interest rate is unchanged.
A reduction in the money supply would be a monetary contraction that would increase the interest rate. The IS curve does not shift. The LM curve shifts upward representing a higher interest rate and a decrease in output.
Now looking at these happening simultaneously, we essentially combine these results and we know that
Output is unknown or ambiguous since the increase in gov. spending would increase output while the reduction in money supply would decrease output.
Interest rate would increase.
We don’t know with certainty what effect this policy mix will have on investment. The effect on investment is unknown because investment is dependent on output and interest rates. Higher interest rates imply that there is a decrease in the incentive to invest in the short run but since output is ambiguous, we’re unsure if there will be lower sales and hence lower investment or higher sales, thus higher investment. Therefore, the effect on investment is ambiguous or unknown. Economics Assignment: I need help writing a research paper.
Why choose us
You Want Quality and That’s What We Deliver
Discounted Prices
Our service is committed to delivering the finest writers at the most competitive rates, ensuring that affordability is balanced with uncompromising quality. Our pricing strategy is designed to be both fair and reasonable, standing out favorably against other writing services in the market.
AI & Plagiarism-Free
Rest assured, you'll never receive a product tainted by plagiarism or AI-generated content. Each paper is research-written by human writers, followed by a rigorous scanning process of the final draft before it's delivered to you, ensuring the content is entirely original and maintaining our unwavering commitment to providing plagiarism-free work.
How it works
When you decide to place an order with Nurscola, here is what happens: