In the questions 14-21 assume the Fed selects

an interest rate target so to stabilize

output at the full employment level and to stab

ilize the price level. Initially output is

at

f

Y

.

Suppose there is an exogenous increase in

money demand.

[14] Show the impact on the short-run LM-IS model. Explain.

r

IS

LM

f

Y

[15] What happens to the Fed's interest target? Explain.