Consider the standard Keynesian ISLM model of the economy.

Consider the standard Keynesian ISLM model of the economy.

a.    How does a change in animal spirits which inspires fear of investment effect ISLM?
b.    How does this effect the aggregate demand and supply?
c.    What will happen to the level of output and price level in the short run and in the long run?
d.    Illustrate the above process by deriving the IS and LM before and after the shock, showing the change in aggregate demand and/or aggregate supply, and by showing the short run and long run changes of P and Y

 

In: Economics

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