Impact of increase in government purchases using IS/LM/BP model.
Using the IS/LM/BP model, demonstrate the effect of each of the following changes. Assume that the economy is a small country with perfect capital mobility and a flexible exchange rate.
1) An increase in government purchases
2) An increase in the money supply
3) A fall in GDP in the rest of the world
4) An increase in the domestic price levelAn increase in tax rates
5) An increase in the domestic price level