• Faith groups across the country have been vocal in their belief that immigration strengthens our communities and adamant in their support for common sense immigration reforms. TheUnited States Conference of Catholic Bishops, theSouthern Baptist Convention,The Church of Jesus Christ of Latter Day Saints, and many other religious groups have endorsed comprehensive immigration reform, and surveys consistently show that majorities of Protestants, Evangelicals, Catholics, Jews, Mormons, Muslims, and Buddhists all overwhelmingly support reform. Mormons in particular have endorsed theUtah Compact, a statement of principles endorsing both strong border protections and the recognition that immigrants help fuel economic growth.
• Global Competitiveness
• The United States has long been the destination for the world's most talented immigrants. Despite the last 50 years of technological advancement, American immigration policy has remained virtually unchanged, putting in danger America's global competitiveness. Yesterday's immigration policy no longer meets today's economic needs. Only about 14 percent of all U.S. green cards are given for economic reasons, compared to more than 60 percent in Canada and Australia. With no dedicated visa for entrepreneurs and numerous barriers to residency in place for international students to stay after graduation, America's outdated immigration policy could allow other countries to out-compete us by attracting and keeping the best and brightest there and not here.
• Faith groups across the country have been vocal in their belief that immigration strengthens our communities and adamant in their support for common sense immigration reforms. TheUnited States Conference of Catholic Bishops, theSouthern Baptist Convention,The Church of Jesus Christ of Latter Day Saints, and many other religious groups have endorsed comprehensive immigration reform, and surveys consistently show that majorities of Protestants, Evangelicals, Catholics, Jews, Mormons, Muslims, and Buddhists all overwhelmingly support reform. Mormons in particular have endorsed theUtah Compact, a statement of principles endorsing both strong border protections and the recognition that immigrants help fuel economic growth.
• Global Competitiveness
• The United States has long been the destination for the world's most talented immigrants. Despite the last 50 years of technological advancement, American immigration policy has remained virtually unchanged, putting in danger America's global competitiveness. Yesterday's immigration policy no longer meets today's economic needs. Only about 14 percent of all U.S. green cards are given for economic reasons, compared to more than 60 percent in Canada and Australia. With no dedicated visa for entrepreneurs and numerous barriers to residency in place for international students to stay after graduation, America's outdated immigration policy could allow other countries to out-compete us by attracting and keeping the best and brightest there and not here.
• EXPLAIN YOUR ANSWERS AS MUCH AS POSSIBLE

Question 17.

Free Response Question I (50/100 points) The Republic of Keynesia is a closed economy and obeys our short-run IS-LM model. Assume it starts out in equilibrium in both the goods market and the money market. Keynesia's economy is described by the following set of equations: Goods market: C = c0 + c1(1-t)Y, where C is consumption; Y is income; t represents a proportional tax; and c0 and c1 are positive constants I = b0 - b1i, where I is investment; i is the interest rate; and b0 and b1 are positive constants G = G , where G is a positive constant Money market: Md = P(m0 + m1Y - m2i), where Md is money demand; P is the price level; m0 (a positive constant) represents exogenous changes to Md ; and m1 and m2 are also positive constants Let Ms represent money supply

1.Combine the goods market equations to derive an expression for Y as a function of i (i.e. derive the IS curve). Give the definition of the IS relation.

2.Use the money market equations to express i as a function of Y (i.e. derive the LM curve). Give intuition for why the LM curve slopes upward/downward. (7 points)

3.Use the money market equations to express i as a function of Y (i.e. derive the LM curve). Give intuition for why the LM curve slopes upward/downward. (7 points)

4.Suppose the government increases its spending by G . Which curve will shift, if any? Calculate by how much it will shift and draw a diagram that shows the impact of this policy. (9 points)

5.What will happen to investment as a result of the government policy described in part 4? (You do not need to calculate anything, just give intuition.) (5 points)

6.Suppose that the government decides to cut taxes instead of increasing spending. Analyze the effects of this expansionary fiscal policy using a diagram. (You do not need to calculate anything, just draw the diagram.)

7.Using the IS-LM model, explain what can be done to offset the changes in the interest rate caused by increased government spending and, at the same time, keep output from declining. (In other words, suggest a way to bring the interest rate back to the level it was at before the policy in part 4 took place without causing a reduction in output). (10 points)