all the essential curves, and key points such as Y
equilibrium income. As with your previous
Assignment on the Y-E model, the diagram in the Lecture Video will show you what your diagram
might look like.
Once you’ve built a reasonably good looking diagram, copy it onto three additional slides (easiest way
is to just copy the entire slide three times). Keep one as a reserve, and carry out the three following
tasks, one on each slide:
i) In response to the Great Recession that began in 2009, the Australian Government and
Central Bank carried out the standard ‘policy mix’ to compensate for the fall in exports and
raise GDP. Show this policy mix in your first Powerpoint slide, with a brief explanation of
each policy in textboxes.
ii) The ‘Fed’, the US Central Bank, similarly carried out an expansionary monetary policy, with
interest rates close to zero and large increases in the Money Supply. However, these have
not succeeded in raising GDP – the best that could be said is that they have prevented a
larger fall. In your second Powerpoint slide, carefully draw the IS-LM curves as assumed
by the school of economics which would predict this failure of monetary policy in a
recession. Name that school of economics in a textbox.
iii) One criticism of the expansionary fiscal policy adopted by many governments during the
Recession has been that it will reduce investment by firms. Draw the IS and LM curves in
your third diagram so that they would fit this prediction.
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