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, Suppose the demand for real money balances {%) depends on disposable income ( T as well as the interest rate (r). That i the
, Suppose the demand for real money balances {%) depends on disposable income ( T as well as the interest rate (r). That i the money demand function is: 3 = L (r, T). Using the /S-LM model, illustrate how this change in the money demand function impacts the analysis of expansionary fiscal policy. , . Analyze the impact of government purchases. Firsy, alter the f5-LM graph below to reflect the impact of an increase in government purchases. Next, move the equilibrium point to indicate the new equilibrium. Analyring Government Purchases Interest Rate, r (in %) 1= 1] ma [=] a z 4 g B 10 12 14 18 18 20 Imcome, {in trillions of $) D. If money demand is a function of disposable income rather than national income, this does not alter the analysis of an increase in government purchases. O False True c. In this analysis, an increase in government purchases will always increase national income (1). O True Falsed. Analysis of the influence of tax policy. First, alter the 75-LM graph below to reflect the impact of a decrease in taxes (7). Next, move the equilibrium point to indicate the new equilibrium. Analyzing Tax Cuts 10 IM m Interest rate, F (in #) Equilibrium 2 4 B 10 12 14 16 18 20 Income, Y (in trillions of $) e. If money demand is a function of disposable income rather than national income, this does not alter the analysis of a tax cut. False Truef. In this analysis, a decrease in taxes will always increase national income (). () False () True
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