Q.2Consider the following fixed-price (P=1) IS-LM modelY = C(Y*)+I(r)+G, Yª = Y - tYC = a +bYM = kY – hrM = y(7 - Y) y > 0a. In this model explain the monetary policy of the central bank.b. Draw the phase diagram of the above model in r - Y space|c. Use your graph, trace out the short-run and the long-run effects of an increase in Y onequilibrium output, rate of interest, and M. Plot the trajectory of Y,r and M againsttime.

The model represents the economy's interaction of the money market and goods and service market. The…

Q.2 Consider the following fixed-price (P-1) IS-LM model Y = C(Yª)+I(r)+G, Yª = Y-ty C=a+byd M=ky-hr M = (-Y) y >0 a. In this model explain the monetary policy of the central bank. b. Draw the phase diagram of the above model in » - Y space | c. Use your graph, trace out the short-run and the long-run effects of an increase in on equilibrium output, rate of interest, and M. Plot the trajectory of Y," and M against time.

Q.2 Consider the following fixed-price (P-1) IS-LM model Y = C(Yª)+I(r)+G, Yª = Y-ty C=a+byd M=ky-hr M = (-Y) y >0 a. In this model explain the monetary policy of the central bank. b. Draw the phase diagram of the above model in » - Y space | c. Use your graph, trace out the short-run and the long-run effects of an increase in on equilibrium output, rate of interest, and M. Plot the trajectory of Y," and M against time.

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter18: Six Debates Over Macroeconomic Policy

Section: Chapter Questions

Problem 1CQQ

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