Interest Rates Affects on the Is-Lm Model Essay Example for Free

Interest Rates Affects on the Is-Lm bewilder EssayAssignment 4 5. According to the IS-LM model, what happens to the pertain post, income, consumption and invest under the succeeding(a) circumstances. a. The commutation bank ontogenesiss money add on. An increase in the money supple shifts the LM curve downward. The equilibrium moves from express A to point B. Income rises from Y1 to Y2 and the interest rate falls from r1 to r2. Therefore this increase in money supply causes a slump in interest rate, an increase in income, an increase in consumption and an increase in investment. LM Income, output, Y b. Government increases government purchasesAn increase in government 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 causes interest rate to rise and income also rises. Consumption impart also increase but the increase in government purchases will cause investment 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 about 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 equally 6. Consider the following economy of Hicksonia. a. The consumption survive is given by C= 200 + 0. 75 (Y T) The investment function is I= 200-25r Government purchases and taxes are both 100.