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Policy Mix in Goods and Money Markets

I need assistance in the following problem:

Describe the policy mix that would result in each of the following situations:

a. The interest rate decreases, investment increases, and the change in aggregate output is indeterminate.
b. Aggregate out increases, and the interest rate change is indeterminate.
c. The interest rate increases, investment decreases, and the change aggregate output is indeterminate.
d. Aggregate output decreases, and the interest rate change is indeterminate.

Solution Preview

Step 1
The interest rate decreases, investment increases, but the change in aggregate output is indeterminate. The policy mix is an expansionary monetary policy. This policy reduces interest rates leading to higher investment. There is no change in fiscal policy or the fiscal policy is unknown because the change in aggregate output is indeterminate. Mix: Expansionary monetary policy, no change in fiscal ...

Solution Summary

This solution explains policy mix in goods and money markets. The sources used are also included in the solution.

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