please explain all parts of the question Question 13: 30 marks (a) 6 marks The I

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please explain all parts of the question

Question 13: 30 marks (a) 6 marks The IS-LM diagram has incomo on the horizontal axis and the interest rate on the vertical axis. What is the LM schedule in this dlagran? Why is it upward sloping? (b) 8 marks What is the IS schedulo in the IS-LM diagram? Why is it downward sloping? Assume the economy is closed and explain your answer mathemateally. (c) 8 marks Uso the IS-LM model to show how fiscal and monetary poicy can be used to increase output wahout changing the interest rate. (d) & marka What are the limitations of the IS-LM model that policy makers should be aware

Explanation / Answer

a. The LM schedule is the upward sloping line and its upward sloping as it shows the positive relation between interest rates and income. It is the locus of money market equilibriums.

b. The IS schedule is the downward sloping curve and shows the negative relation between investment demand and interes rates. It is the locus of goods market equilibriums.

c. An expansionery monetary policy will cause the LM curve to shift rightwards and an expansionery fiscal policy will cause the IS curve to shift rightwards. The combination of these policies will leave the interest rates unchanged but output will increase.

d. The ISLM model does not consider changes in the price level in its framework.

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