Queens College, CUNY - ECON 201

Macroeconomic Analysis HW 2

March 16th, 2014

1)(Jones Ch11 Q2/3) Consider the following changes in the macro economy. Show how to think about them using the IS curve, and explain how and why GDP is affected in the short run. Use both equations and graphs to answer this question.

1. The Federal Reserve undertakes policy actions that have the effect of lowering the real interest rate below the marginal product of capital.

2. The government offers a temporary investment tax credit: for each dollar of investment that firms undertake, they receive a credit that reduces the taxes they pay on corporate income.

3. Improvements in information technology increase productivity and therefore increase the marginal product of capital.