macroeconomics

1. Compare the impact of a tax cut under two versions of the IS-LM model: the version under which the central bank maintains an interest-rate target, and the version under which the central bank maintains a monetary target.  What accounts for the differing impacts on Y? Use the IS-LM graph to show your results 

 

 

2. In the context of the IS-LM model, suppose the government’s budget is initially balanced, and exports exactly equal imports.  Characterize the impact on the trade balance of a surge in government expenditures G that results in a government budget deficit. Use the IS-LM graph to show the impact of the increase in government expenditures G.

 

 

 

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