Suppose the Federal Reserve is using an interest rate as a target, while real income is the ultimate policy target, and there is an autonomous drop in business investment that the Federal Reserve had...


Suppose the Federal Reserve is using an interest rate as a target, while real income is the ultimate policy target, and there is an autonomous drop in business investment that the Federal Reserve had not predicted. Use the IS – LM model to show the effects of the shock. Would income have been affected less or more if the Federal Reserve had been using a money supply target?



May 18, 2022
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