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Use the IS-LM model to determine the effects of each of the following Shocks (hitting the economy at the same time) on the general equilibrium
Use the IS-LM model to determine the effects of each of the following Shocks (hitting the economy at the same time) on the general equilibrium values of the real wage, employment, output, real interest rate, consumption, investment, and price level. Note: Properly explain each channel involved in the restoration process.
- a)A beneficial supply shock hits the economy and at the same time consumers become optimistic and increase their consumption.
- b)Government Expenditures increase and at the same time central bank increases money supply.
- c)A beneficial supply shock hits the economy and at the same time the central bank decreases money supply.
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