Explain which of these changes represent a move along the IS curve and/or which represent a shift of the IS curve and why.
PLEASE DO NOT ANSWER UNLESS YOU THOROUGHLY UNDERSTAND IS CURVES
(a) Stock market boom boosts consumption and investment
(b) Government cuts taxes by $50 billion
(c) Government passes $50 billion public works bill and pays for it with a $50 billion tax increase
(d) Fed boosts interest rate from 5% to 6%
(e) Tax receipts fall $30 billion as economy plunges into recession
(f) Value of the dollar rises 10%, cutting net exports by $40 billion
(g) Net exports rise $20 billion as Asian economy recovers
(h) Rise in interest rates diminishes housing starts
(j) Mortgage interest is no longer deductible, so housing starts decline
Please find the attached solution.
The IS curve represents the pairs of r & y that will keep the product market in equilibrium, in the sense that planned investment plus government purchases equals planned savings plus tax revenue at that level of income.
(a) Stock market boom boosts consumption and investment .As a result the IS curve will shift to the right. Increased consumption & investment will lead to increase the equilibrium Y through the multiplier effect. As equilibrium Y increases, the IS curve will shift to the right with fixed interest rate.
(b) Government ...
The expert determines which show a move along the IS curve and/or which represent a shift of the IS curve.