Explore BrainMass
Share

context of a closed economy IS-LM model

This content was STOLEN from BrainMass.com - View the original, and get the already-completed solution here!

In the context of a closed economy IS-LM model;

(a) Under what circumstances would the following have no effect of the level of output?
i. An increase in government spending.
ii. An open market purchase of bonds, from the public.

(b) Under what circumstances would the following have no effect on the rate of interest?
i. An increase in government spending.
ii. An open market purchase of bonds, from the public.

© BrainMass Inc. brainmass.com October 24, 2018, 6:26 pm ad1c9bdddf
https://brainmass.com/economics/bonds/context-of-a-closed-economy-is-lm-model-40638

Solution Preview

(a) Under what circumstances would the following have no effect of the level of output?
i. An increase in government spending.
This is actually a question about the shape of LM curve.
We know that the LM is flat at lower level of interest rate and output, and turns more and more steep when output level increases. When the output is close to the potential output level, it is like a vertical ...

Solution Summary

LM curve is evaluated.

$2.19
See Also This Related BrainMass Solution

Summary of articles on economic theories

Summarize the two working papers on Tobin's Marginal Q and Keyne's General theory.

View Full Posting Details