(a) Derive the AD curve from IS-LM. Explain in words.

Show using the AD-SRAS-LRAS curves what happens to real interest rate, output and prices in each of the following scenarios in the short-run and the long-run.

(b) Real money supply increases

(c) A temporary increase in government purchases for military purposes. Will it matter whether the temporary increase in military spending is funded by taxes or by borrowing?

Answer rating: 100% (QA)

It is noted that the IS and LM curves are merged together with an aim of determining the AD schedule ... View the full answer