IS-LM model.

Question 11 (20 points) Answer the following questions using the IS-LM model and support your explanation by ONE diagram for all parts. Also, compare your answer to initial equilibrium. Each part is worth 5 points. Suppose a closed economy experiences a fall in money demand. a) What happens to the economy's output, price, real money balance and unemployment rate in the short run? Explain. b) In the absence of intervention from policy makers, what happens to the economy's output, price, the real money balance and unemployment rate in the long run? Explain. c) Suppose the government nds the change in output in part (a) undesirable and wants to keep output from changing, what kind of policy should the government pursue? What happens to the real money balance? (1) Suppose the central bank nds the change in output in part (a) undesirable and wants to keep output constant, What kind of policy should the central bank pursue? What happens to the real money balance