Aggregate Demand II - End of Chapter Problem @ Macmillan Learning Monetary policy and fiscal policy often change at the same time. For both scenarios below, I) adjust the IS-LM graph to reflect the policy mix scenario, and 2) answer the related question. a. Suppose the government wants to raise investment but keep output (1) constant. Adjust the /S-LM graph below to reflect the necessary fiscal and monetary policy mix necessary to achieve this goal. Increase Investment, Maintain Output 10 IM ID Interest Rate r (in *) 2 4 10 14 16 18 20 Income, Y' (in trillions $)The Fed should the money supply, and the government should increase @ Macmillan Learning b. In the early 1980s, the U.S. government cut taxes and ran a budget deficit, while the Fed pursued a tight monetary policy. Tax Cut and Tight Monetary Policy 10 ID Interest Rate r (in *) IS 2 4 6 B 10 12 14 16 18 20 Income, Y, in billions of $) Lowering taxes increased income (Y) and in the money market, while decreasing theD. In the early 1980s, the U.s. government cut taxes and fall a budge get deficit, while the fed pursued a tight monetary policy. @ Macmillan Learni Tax Cut and Tight Monetary Policy 10 IM 9 Interest Rate r (in *) 2 IS 2 4 10 12 14 16 18 20 Income, Y, in billions of $) Lowering taxes increased income (1) and in the money market, while decreasing the money supply increased the interest rate (r) and in the goods market