Use the diagram of the IS/LM model to illustrate the effect of a:
a) decrease in the money supply
b) increase in government spending
c) increase in autonomous money demand (for example, the financial panic example in book)
d) decrease in autonomous consumption
2. Take your example from (c) above. What type of macroeconomic policy (fiscal or monetary) could offset the impact of an increase in money demand? Illustrate with a graph.
3. Take your example from (d) above. What type of macroeconomic policy (fiscal or monetary) could offset the impact of decrease in autonomous consumption? Illustrate with a graph.
4. Draw another graph of the IS/LM model. Put a point to the right of the LM curve and above the IS curve. At this point, describe the nature of disequilibrium in the a) money market, b) goods market.