sm1l3y asked in Social ScienceEconomics · 1 decade ago

Can someone help me with the macroeconomics problem?

A. Suppose there is an decrease in consumer optimism about the future (often called an decrease in consumer confidence). What will be the effect on consumption for any level of output and taxes? Show how the change in consumption behavior will affect the IS-LM diagram. What is the effect on output and the interest rate?

B. Suppose the Federal Reserve wanted to eliminate the effects on output you described in part (a). What could the Federal Reserve do to maintain constant output? In an IS-LM diagram, show how this policy, when combined with the decrease in consumer confidence, maintains constant output. How is investment ultimately affected by the combination of the decrease in confidence and the Federal Reserve policy? How is consumption affected?

Thank You

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