Question: Using both IS / LM / FE and the AD / AS models, and the Keynesian assumptions, a . Suppose that the increased risk from
Using both ISLMFE and the ADAS models, and the Keynesian assumptions,
a Suppose that the increased risk from the previous question is occurring. Show graphically the expected changes in both the Short Run and the Long Run for the interest rate, GDP and Prices.
b On a separate graph, starting in the Short Run what policy would the Fed do to stabilize the economy. Show what would happen to the interest rate, GDP and Prices.
c On a separate graph, starting in the Short Run what policies would the Government do to stabilize the economy. Show what would happen to the interest rate, GDP and Prices.
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