1. In the context of the IS-LM model, what is the effect of each of the following on equilibrium output and the real interest rate? Explain why these effects occur and show graphically.
a. New smart phone apps reduce the need to hold cash.
b. The European Commission, the ECB and the IMF finally agree a deal for Greece that markets like. Consumer and firm expectations of the future are again rosy.
2. In the context of the AS-AD model, what is the effect of each of the following on equilibrium output, the real interest rate, and the price level? Explain why these effects occur and show graphically.
a. The decade of austerity finally ends. To make up for the lost years, the government initiates a number of new spending programs.
b. A new battery allows cars to run on solar power. Oil prices plummet.
3. In the context of the Solow growth model, and extensions thereto, what is the effect of each of the following on long-run equilibrium output and consumption per effective worker? Explain why these effects occur and show graphically.
a. Governments invest heavily in R&D in an effort to increase research fertility. They are unsuccessful.
b. A wonder drug is developed which makes all workers twice as productive