Housing prices causes investment to decrease sharply

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Consider the 2008-2010 recession. Use the IS-LM model to analyze the following. Suppose that the decrease in housing prices causes investment to decrease sharply, i) Show how the economy is affected in your IS-LM diagram. How are GDP and interest rates affected, ii) Suppose both fiscal and monetary policies to fight the recession are adopted. Describe what the Fed and the Government would do. Also, show how your diagram would be affected as a result of these simultaneous policies.

Reference no: EM131173845

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