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• Why do we even need to understand how the IS or LM curve function? I mean, since we know that as prices change, so will output (Aggregate demand curve), then who cares? Explain why it matters!

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• Let’s examine the goals of the Bank of Canada influence its response to shocks. Suppose central bank A cares only about keeping the price level stable, and central bank B cares only about keeping output and employment at their natural rates (). Explain how each central bank would respond to

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• The government of Canada is contemplating adding a pharmacare program (the government would be paying for all medication for Canadians).

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• Given what you know from class. The goal of the Bank of Canada (central bank), is to hold inflation constant at 2%. We also know that money supply in Canada increases every year (see link: https://www.bankofcanada.ca/rates/indicators/key-variables/ , if you look at money aggregate, they have indicated the growth of money: the Money supply increases every month by 15 to 4%!)

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• Given that the Syldavian economy (SOE) is the following:

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• An exogenous decrease in the velocity of money.

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• An exogenous increase in the price of oil.

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• Explain what will be impacted if anything in the IS-LM model. (this will increase MPC, explain what will take place after that)

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• Since funding a program like this could not be done one borrowing alone, an increase in tax is incredibly likely. Explain what would take place if the pharmacare program takes place and taxes increase at the same time. Should we expect higher interest rates, output, and investments? Discuss.

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• Illustrate a), b) and the possible changes to the mentioned variables in b) (keeping in mind that prices are fixed)

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• What must be taking place in the economy for money supply to continuously increase but prices to barely change?(hint: look at money demand function in the previous question)

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nYou have a lot that can be discussed in this question. Show me what you got!nnC=1000+0.9(Y-T)nnI=1000-20rnnNX(e)=100-10ennM/P=5000nnr*=2%nnG=4000nnT=4000nnAnswer the following questionsn

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• Find IS* curve

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• Find LM* curve

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• Find exchange rate e

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• Find equilibrium output.

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• If the Syldavian wanted to go to war and increase the amount of goods purchased by the government. What would take place?

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• Could the government increase spending and increase Money supply to make sure prices and exchange rates don’t change?

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