Economic meaning of the different slopes of the LM curves

Assignment Help Business Economics

Reference no: EM131001906

In economy A, the LM curve is very steep, but not vertical (call this the “Friedman” economy) while in economy B, the LM curve is very flat (call this the “Keynesian” economy). The economies are identical in all other respects. (a) What is the economic meaning of the different slopes of the LM curves? (b) Compare the response in economy A to the response in economy B when there is an increase in G. Specifically, compare the change in Y, in the interest rate, and the potential for crowding out. (HINT: Use a single graph with two LM curves, one for economy A and one for economy B. Assume the IS curve is the same in both economies and show it on the graph.) (c) Explain the reasoning behind each outcome by examining the adjustment in the money market. Focus on the demand for money.

Reference no: EM131001906

Questions Cloud

Purchases surface water for treatment : EI Paso Water Utilities (EPWU) purchases surface water for treatment and distribution to EPWU customers from EI Paso Country Water Improvement District during the irrigation season. A new contract between the two entities resulted in a reduction in f..

The probability that any given unit will operate : The probability that any given unit will operate for at least (1) 39 months, (2) 48 months, (3) 60 months. (Enter your answer to 4 decimal places using probabilities shown in the above table.)

What types of unemployment does the text describe : We have done a fantastic job getting a basic understanding of unemployment. Let's take a look at some additional ideas on unemployment. The text gives us various "types of unemployment" beginning on page 411. What types of unemployment does the text ..

How does human trafficking connect to social justice : How does human trafficking connect to social justice, John Rawls, The universality of the universal declaration of human rights, legal means and so on

Economic meaning of the different slopes of the LM curves : In economy A, the LM curve is very steep, but not vertical (call this the “Friedman” economy) while in economy B, the LM curve is very flat (call this the “Keynesian” economy). The economies are identical in all other respects. (a) What is the econom..

Corporate financial policy 5580 : Corporate Financial Policy 5580, Exam Discuss the differences in magnitudes and directions of the cumulative abnormal returns after the announcement of such issuances to support your arguments.

The economy is in liquidity trap : Use graphs to derive the LM curve for each of the following cases: (a) the central bank targets the money supply (b) the central bank targets the interest rate (as it does now) (c) the economy is in a “liquidity trap” because the demand for money is ..

Solve for the equilibrium interest rate : Derive the IS equation. (Y = …) (b) Derive the LM equation (Write this as i = …) (c) Solve for equilibrium output (Y). (d) Solve for the equilibrium interest rate. (e) Solve for the values of C, I, and G at equilibrium. (f) Next, allow the real money..

Some medical clinics participate in the testing of drugs : Some medical clinics participate in the testing of drugs that are still in the experimental stage. In such situations the Food and Drug Administration stipulates that the physician must explain to the patient the nature of the drug, its possible bene..

User Account

All Pages