Interest Rates Affects on the Is-Lm Model Essay

Assignment 4 5. According to the IS-LM model, what happens to the enliven rate, income, usage and invest chthonian the following circumstances. a. The central bank maturations money supply. An increase in the money supple shifts the LM sheer downward. The balance moves from argue A to point B. Income rises from Y1 to Y2 and the beguile rate falls from r1 to r2. then this increase in money supply forms a decrease in interest rate, an increase in income, an increase in consumption and an increase in investment. LM Income, output, Y b. Government increases regime purchasesAn increase in giving medication purchases result in a shift in the IS curve to the right. The equilibrium moves from point A to point B. Income rises from Y1 to Y2 and interest rate rises from r1 to r2. This increase in government purchases therefore lay downs interest rate to rise and income as well as rises. Consumption will also increase however the increase in government purchases will cause investme nt to decrease. interest rate, r LM IS2 IS1 Income, output, Y c. The government increases taxes. An increase in taxes shifts the IS curve to the left. The equilibrium moves from point A to point B.Income falls from Y1 to Y2 and the interest rate from r1 to r 2. Therefore increase in taxes will bring somewhat a decrease in interest rate, cause income to also decrease which will decrease consumption also but will result in an increase in investment. interest rate, r LM IS1 IS2 Income, output, Y d. The government increase government purchases and taxes as 6. Consider the following economy of Hicksonia. a. The consumption belong is given by C= 200 + 0. 75 (Y T) The investment function is I= 200-25r Government purchases and taxes argon both 100.