Question: Consider two IS curves. E IS2 IS1 O Y The simultaneous equilibrium in both goods market and money market is originally represented by point E.

Consider two IS curves. E IS2 IS1 O Y The simultaneous

Consider two IS curves. E IS2 IS1 O Y The simultaneous equilibrium in both goods market and money market is originally represented by point E. (a) Suppose price level is fixed in the short run. With an aid of a diagram, compare the effects of a decrease in money supply on output and interest rate for IS, and IS2. (b) Give ONE reason why IS curve is steeper. (c) Suppose money supply is fixed but the price level rises, what will happen to IS curve and LM curve? You should draw a diagram to illustrate the market situation behind a IS curve or a LM curve. (d) Draw two aggregate demand (AD) curves that correspond to IS, and IS2. Clearly indicate if IS, will be represented by a steeper or a flatter AD. You should use diagrams to illustrate how AD can be derived from the IS-LM model

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