Section A Answer the following question. a) Assume that a country is suffering from rising inflation due to an energy crisis. By using the IS-LM model, analytically explain and graphically illustrate two monetary policies that the central bank can implement in order to combat rising inflation. What are their effect on equilibrium short term interest rate, output, consumption and investment? b) Discuss any possible negative side effects that the implementation of these policies may have on the economy. Note: Assume a flat LM curve.

Section A Answer the following question. a) Assume that a country is suffering from rising inflation due to an energy crisis. By using the IS-LM model, analytically explain and graphically illustrate two monetary policies that the central bank can implement in order to combat rising inflation. What are their effect on equilibrium short term interest rate, output, consumption and investment? b) Discuss any possible negative side effects that the implementation of these policies may have on the economy. Note: Assume a flat LM curve.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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