Assignment Overview - Write a 400-word essay that analyzes the macroeconomic impact of the September 11 terrorist attack on the US economy and the policy responses by Congress and/or the Federal Reserve to those shocks by using the IS-LM model.

Assignment Objective- Determine the macroeconomic impacts on interest rates and output from an unexpected event seemingly unrelated to macroeconomics. In this exercise, you will use the IS-LM model to explain the impact of macroeconomic shocks using the September 11 terrorist attacks as an example. Interest rates,in this model are variable, but prices are still assumed to be fixed.

Background - Assume the economy was in short and long-run equilibrium before the terrorist attacks. Thus, ignore the fact that the dotcom bubble busted a few months before September 11th. Analyze the short-term macroeconomic impact on the economy of this shock and discuss alternative policy responses, identifying the resulting new short term equilibrium of the economy in the IS-LM diagram.

Requirements

Briefly describe the circumstances surrounding the macroeconomic shock. Your analysis should identify which component of the economy (C, I, G, T, NX, Ms, or Md) that was directly affected by the attacks. Your response for this requirement must be less than 100 words.

Need help with the bolded question under Requirements.