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PROBLEM SET 5

Problems for Chapter 5


1.

For each part below, start with and IS-LM diagram drawn like that below.
i

LM
A
i1

IS
Y1

Suggest a mix of monetary and fiscal policy that will achieve the following objectives.
Justify your answers by using the diagram and explain your reasoning.
a.
b.

Increase Y while keeping I constant at i1.


Decrease the government budget deficit while keeping Y constant at
Y1.