Using the ISLM model, explain and show graphically the effect of a fiscal expansion when the demand for money is completely insensitive to changes in the interest rate. What is this effect called?
What will be an ideal response?
See figure below.
This is the total crowding out effect. The LM curve is vertical, so any shift of the IS curve affects only interest rates. The level of output is constant. The fiscal expansion shifts the IS curve rightward, increasing the interest rate.
Economics
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The purchase of fire extinguishers by apartment dwellers provides benefits to their neighbors. Explain why this situation leads to an inefficient outcome
What will be an ideal response?
Economics
Macroeconomics studies the following topics:
A) national output, the inflation rate, and the trade deficit. B) the price of Cisco stock and wage differences. C) differences in market structure. D) all of the above.
Economics