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ASSOCIATED MOVEMENT OF IS OR LM ● shifts LM rightward. Shift it back with ● ● shifts LM leftward. Shift it back with

MACROECONOMIC DISTURBANCE Consider the six possible parametric changes listed below. Match each of the six changes in this column (marked by four solid bullets and two hollow boxes) with the consequent shift in the second column. A waxing of the “animal spirits” ●

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ASSOCIATED MOVEMENT OF IS OR LM ● shifts LM rightward. Shift it back with ● ● shifts LM leftward. Shift it back with

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  1. MACROECONOMIC DISTURBANCE Consider the six possible parametric changes listed below. Match each of the six changes in this column (marked by four solid bullets and two hollow boxes) with the consequent shift in the second column. A waxing of the “animal spirits” ● A waning of the “animal spirits” ● An increase in liquidity preferences ● A decreased in liquidity preference ● An increased in saving propensities ❍ A decreased in saving propensities ❍ ASSOCIATED MOVEMENT OF IS OR LM ● shifts LM rightward. Shift it back with ● ● shifts LM leftward. Shift it back with ● ● shifts IS rightward. Shift it back with ● ● shifts IS leftward. Shift it back with ● CORRECTIVE POLICY ACTION Now identify the appropriate policy for rectifying the problem. In some instances, you may choose as many as two policy options. Choosing two is to be interpreted as using one or the other of the two policies. ● an increase in government spending. ● an increase in taxes. ●a decrease in government spending. ● a decrease in taxes. ● an increase in the money supply. ● a decrease in the money supply. A KEYNESIAN VIEW OF MACROMALADY AND POLICY PRESCRIPTION Suppose that IS and LM intersect at full-employment income without inflation. Macroeconomic disturbances of various sorts can take the economy away from this Keynesian bliss point. What sorts of disturbances can we expect? Which curve (IS or LM) will be directly affected? And what policy (or policies) can restore the economy to its bliss point? (Click to test your skills at diagnosing and fixing the macromaladies.)

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