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Question 5 [10] The IS-LM model integrates the real and the monetary sectors and shows their interrelatedness and interaction in one diagram. One dimension of

Question 5 [10] The IS-LM model integrates the real and the monetary sectors and shows their interrelatedness and interaction in one diagram. One dimension of the IS-LM mechanics is the effect of steeper or flatter curves on the magnitude of the resultant changes in Y and I. This particularly concerns the potency of monetary or fiscal policy to affect real income. Using the IS-LM model, illustrate how the slope of the LM curve can influence fiscal stimulus. Clearly indicate the magnitude of the resultant changes in Y and I and conclude by explaining from your graph where fiscal policy would be more potent.

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