Analyze the macroeconomic impact of the September 11th terrorist attack on the US economy and the policy responses by Congress and the Federal Reserve to those shocks by using the IS-LM model.

Determine the macroeconomic impacts on interest rates and output from a macroeconomic shock using the September 11 terrorist attacks as an example.

Assume the economy was in short and long-run equilibrium before the terrorist attacks. Analyze the short-term macroeconomic impact on the economy of this shock and talk about alternative policy responses, identifying the resulting new short-term equilibrium of the economy in the IS-LM diagram. The price level is assumed fixed as we are focusing on the short run impact.

Talk about the circumstances surrounding the macroeconomic shock. Create an IS-LM diagram, tracing the macroeconomic impacts of the shock within the IS-LM framework. Talk about an initial shift of IS and/or LM which reflects your conclusion.

Using the IS-LM diagram identify and evaluate the government monetary and fiscal policy responses to the shock actually implemented at the time, and their effect on the short-run equilibrium of the economy. The policy response should be traced within the IS-LM diagram leading to a new short run equilibium.

Talk about the interaction between fiscal and monetary policy, and state which policy mix you would have recommended at the time and why.