. Within the IS-LM model, show how income and the interest rate are affected by each of the following:

a. A decline in government spending.

b. An autonomous increase in investment spending.

c. A decline in taxes.

d. A decline in the money supply.

In each case, explain why the changes in income and the interest rate occur.

ii. Explain the relationship between the effectiveness of monetary policy and the interest elasticity of investment. Will the monetary policy be more or less effective the higher the interest elasticity of investment demand? Now explain the relationship between the effectiveness of fiscal policy and the interest elasticity of investment demand. Why do the two relationships differ?