Question

6. Suppose that the interest rate has no effect on investment.

a. Can you think of a situation in which this may happen? b. What does this imply for the slope of the IS curve? c. What does this imply for the slope of the LM curve?

d. What does this imply for the slope of the AD curve? Continue to assume that the interest rate has no effect on investment. Assume that the economy starts at the natural level of output. Suppose there is a shock to the variable z, so that the AS curve shifts up.

e. What is the short-run effect on output and the price level? Explain in words.

f. What happens to output and the price level over time? Explain in words

hi , only need answers from part e & f, don't copy from another sources from Chegg.

thank you ,

explain them in details.

Answer 1