Question
With the pandemic, people started to save a larger proportion of their income due uncertainty and that they simultaneously begin to usetechnologies which allows them
With the pandemic, people started to save a larger proportion of their income due uncertainty and that they simultaneously begin to usetechnologies which allows them to reduce their holding of real cash balances as a proportion of their income. Use the IS-LM model to illustrate graphically the impact of these two changes in household behavior on output and interest rates.
Be sure to label: i. the axes; ii. the curves; iii. the initial equilibrium values; iv. the direction the curves shift and v. the terminal equilibrium values. State in words what happens to output.
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