Interest Rates Affects on the Is-Lm Model Essay

date 4 5. According to the IS-LM model, what happens to the delight send, income, role and invest under the next circumstances. a. The central bank adds money render. An step-up in the money supple shifts the LM veer downward. The equilibrium moves from exhibit A to intimate B. Income rises from Y1 to Y2 and the interest order falls from r1 to r2. hence this growth in money supply formers a devolve in interest rate, an increase in income, an increase in consumption and an increase in investment. LM Income, output, Y b. politics increases government purchasesAn increase in government purchases result in a shift in the IS thin to the right. The equilibrium moves from point A to point B. Income rises from Y1 to Y2 and interest rate rises from r1 to r2. This increase in government purchases therefore causes interest rate to rise and income as well rises. Consumption depart also increase but the increase in government purchases will cause investment to decrease. inter est rate, r LM IS2 IS1 Income, output, Y c. The government increases taxes. An increase in taxes shifts the IS curve to the left. The equilibrium moves from point A to point B.Income falls from Y1 to Y2 and the interest rate from r1 to r 2. so increase in taxes will look at about a decrease in interest rate, cause income to also decrease which will decrease consumption also but will result in an increase in investment. interest rate, r LM IS1 IS2 Income, output, Y d. The government increase government purchases and taxes equally 6. Consider the following economy of Hicksonia. a. The consumption function is habituated by C= 200 + 0. 75 (Y T) The investment function is I= 200-25r Government purchases and taxes are both 100.