Question $3$ IS$-$LM Analyses

$($a$)$ With the help of carefully labeled diagrams, use the model of the Keynesian Cross to construct the IS curve.

$(5$ marks$)$

$($b$)$ With the aid of carefully labeled diagrams, use the Keynesian Cross model and the IS curve to illustrate the impact of a reduction in government spending on planned expenditure $($PE$),$ Aggregate output and interest rate $($ r $).$

$(4$ marks$)$

$($c$)$ With the aid of carefully labeled diagrams, use the Liquidity Preference model in the market for real money balances to derive the LM curve.

$(5$ marks$)$

$($d$)$ Suppose there is a drastic reduction in interest rates on credit cards such that many individuals now begin to use more credit cards and less cash. Use the Liquidity Preference model in the market for real money balances to illustrate the effect on the LM curve, output $(Y)$ and interest rates $($ r $).$

$(6$ marks$)$

$($Total $20$ marks$)$

Question $3$ IS$-$LM Analyses

$($a$)$ With the help of carefully labeled diagrams, use the model of the Keynesian Cross to construct the IS curve.

$(5$ marks$)$

$($b$)$ With the aid of carefully labeled diagrams, use the Keynesian Cross model and the IS curve to illustrate the impact of a reduction in government spending on planned expenditure $($PE$),$ Aggregate output and interest rate $($ r $).$

$(4$ marks$)$

$($c$)$ With the aid of carefully labeled diagrams, use the Liquidity Preference model in the market for real money balances to derive the LM curve.

$(5$ marks$)$

$($d$)$ Suppose there is a drastic reduction in interest rates on credit cards such that many individuals now begin to use more credit cards and less cash. Use the Liquidity Preference model in the market for real money balances to illustrate the effect on the LM curve, output $(Y)$ and interest rates $($ r $).$

$(6$ marks$)$

$($Total $20$ marks$)$ Show all workings and graphs