Based on your understanding of the IS-LM model, graphically illustrate and explain what effect a reduction in consumer confidence will have on output, the interest rate, and investment
What will be an ideal response?
A reduction in consumer confidence will cause a reduction in consumption and, therefore, a reduction in demand and a leftward shift in the IS curve. As Y decreases, money demand will decrease causing the interest rate to fall. The effects on I are ambiguous. The lower Y will cause I to fall while the lower interest rate will cause I to increase.
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A business cycle
a. is ups and downs in the level of economic activity over time b. is irregular and unpredictable c. has existed since recorded history d. all
On January 2, 1971, all cigarette advertising was banned on U.S. television and radio stations. Did this ban likely increase or decrease the profits of cigarette companies in 1971? Briefly explain
What will be an ideal response?