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Homework answers / question archive / 1)What determines the position of the FE line? Give two examples of changes in the economy that would shift the FE line to the right

1)What determines the position of the FE line? Give two examples of changes in the economy that would shift the FE line to the right

Economics

1)What determines the position of the FE line? Give two examples of changes in the economy that would shift the FE line to the right. 

 

 

 

 

 

 

  1. What relationship does the IS curve capture? Derive the IS curve graphically and show why it slopes as it does. Give two examples of changes in the economy that would cause the IS curve to shift down and to the left. 

 

 

 

  1. What relationship does the LM curve capture? Derive the LM curve graphically and show why it slopes as it does. Give two examples of changes in the economy that would cause the LM curve to shift down and to the right. 

 

 

 

  1. For constant output, if the real money supply exceeds the real quantity of money demanded, what will happen to the real interest rate that clears the asset market? In describing the adjustment of the real interest rate, use the relationship that exists between the price of a nonmonetary asset and the interest rate that it pays. 

 

  1. Define general equilibrium and show the general equilibrium point in the IS-LM diagram. If the economy isn't in general equilibrium, what determines output and the real interest rate? What economic forces act to bring the economy back to general equilibrium? 

 

 

 

  1. Define monetary neutrality. Show that, after prices adjust completely, money is neutral in the IS-LM model. What are the classical and Keynesian views about whether money is neutral in the short run? In the long run? 

 

 

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