Using the IS LM and AS AD to analyze economic shocks (a) During the great recession of 2007 2009, housing prices declined sharply reducing household wealth and disposable income Using the IS LM framework graph the effect of this shock What's the impact on output and the interest rate (b) Assume that at the same time, people avoided financial institutions and held on to their funds instead of depositing them at banks Using the IS LM framework graph the effect of this shock What's the impact on output and the interest rate (c) Assume that we observed the interest rate rise Which shock was more significant (larger), the one in (a) or(b) (d) Graph the effects of the shocks in (a) and (b) on Aggregate Demand (e) The government passed a fiscal stimulus package which increased government expenditures and reduced taxes At the same time, the Fed increased money supply Explain the effects of each intervention in the IS LM framework and on Aggregate Demand (f) If the government did not intervene as in the previous question, describe the long run adjustments that would bring the economy back to full employment

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Question: Using the IS-LM and AS-AD to analyze economic shocks. (a) During the great recession of 2007-2009, housing prices declined sharply reducing household wealth and disposable

Using the IS-LM and AS-AD to analyze economic shocks.

(a) During the great recession of 2007-2009, housing prices declined sharply reducing household wealth and disposable income. Using the IS-LM framework graph the effect of this shock. What's the impact on output and the interest rate?

(b) Assume that at the same time, people avoided financial institutions and held on to their funds instead of depositing them at banks. Using the IS-LM framework graph the effect of this shock. What's the impact on output and the interest rate?

(d) Graph the effects of the shocks in (a) and (b) on Aggregate Demand.

(e) The government passed a fiscal stimulus package which increased government expenditures and reduced taxes. At the same time, the Fed increased money supply. Explain the effects of each intervention in the IS-LM framework and on Aggregate Demand.

(f) If the government did not intervene as in the previous question, describe the long run adjustments that would bring the economy back to full employment.

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