Question
Use the IS-LM and AD-AS model to analyse the effects of each of the following on the economy on short run equilibrium levels of real
Use the IS-LM and AD-AS model to analyse the effects of each of the following on the economy on short run equilibrium levels of real interest rate, output, price and consumption. It is assumed that there is no sticky price adjustment. Draw the IS-LM and AD-AS (without misperception theory version) graph to show your answers and briefly explain.
(a) A reduction in the effective tax rate on capital increases desired investment (b) The expected rate of inflation increases
(c) An influx of high-skilled immigrants increases labour supply (ignore any other possible effects of increased population)
(d) There is an improvement in the efficiency of payment technologies
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started