In this problem, we use the IS-LM diagram to investigate the effect of fiscal and monetary policy mixed. That is, what is the effect of shifts to both the IS Curve and LM Curve on equilibrium interest rate (r*) and output/income (Y*), given changes to government purchases or taxes, and given changes to the money supply.

More Macroeconomics Problems: https://sites.google.com/site/curtisk...

------------------------------------------------------------
Monetary policy and fiscal policy often change at the same time.

0:55 a. Suppose that the government wants to raise investment buy keep output constant. In the IS-LM model, what mix of monetary and fiscal policy will achieve this goal?

0:42 b. In the early 1980s, the US Government cut taxes and ran a budget deficit while the Fed pursued a tight monetary policy. What effect should this policy mix have?