Homework answers / question archive /  Suppose that increased stock market volatility causes an increase in demand for money holdings

 Suppose that increased stock market volatility causes an increase in demand for money holdings

Economics

Share With

 Suppose that increased stock market volatility causes an increase in demand for money holdings. A. Using both the IS-LM and the AD/AS models, analyze the short run impact of this on the economy. In the short run, what happens to the following? real GDP employment the price level real interest rates consumption investment B. Now suppose there is no policy reaction. What is the long run result of this shock for these variables (relative to their levels prior to the shock)? real GDP employment the price level real interest rates consumption investment C. Suppose instead that there is a fiscal policy reaction that attempts to move the economy back to general equilibrium in the short run. Assume it is successful. Now what are the results for these variables (relative to their long run levels if there was no policy reaction)? real GDP employment the price level real interest rates consumption investment D. Suppose instead that there is a MONETARY policy reaction that attempts to move the economy back to general equilibrium in the short run. Assume it is successful. Now what are the results for these variables (relative to their long run levels if there was no policy reaction)? real GDP employment the price level real interest rates consumption investment