1. (40 points total) Consider the IS-LM model based on the following equations.
All variables are defined in the same way as in class. In this model, the central bank has a target real interest rate r. Thus, in response to shocks, it adjusts money supply M to maintain R = r. For each of the following events, (i) identify which exogenous variable changes; (ii) explain how Y, C, I, and (M/P)^d respond (only qualitatively); and (iii) provide economic intuitions.
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Write My Essay For Me(a), The government buys more goods and services than before. (10 points)
(b) Inflation raises the general price level (10 points)
(c) Mobile payments make money less essential for transactions. (10 points)
(d) Bad news about the economy makes firms reluctance to invest (10 points)
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