3. The response of investment to fiscal policy a. Using the IS-LM diagram, show the effects on output and the interest rate of a decrease
3. The response of investment to fiscal policy a. Using the IS-LM diagram, show the effects on output and the interest rate of a decrease in government spending. Can you tell what happens to investment? Why? Now consider the following IS-LM model C = Co + G( Y - T) I = bo + bY - bzi MIP = dY - dzi b. Solve for equilibrium output. Assume & + b,
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