What causes dependence of aggregate demand on price level

Reference no: EM13897775

1. "In a closed economy, if the money stock is held constant by the central bank, an increase in the government de?cit does not have either short-run or long-run effects on aggregate demand or the interest rate." Discuss in the context of the IS-LM model and the IS-LM model with Ricardian equivalence.

2. Modify the general IS-LM model of this chapter to the appropriate model for a closed economy. Specify the IS, LM and aggregate demand equations. What causes the dependence of aggregate demand on the price level?

3. Assuming that the central bank follows a simple interest rate target rule, modify the general IS-IRT model of this chapter to the appropriate one for a closed economy. Specify its IS and aggregate demand equations. Is the price level P a variable in these equations? Plot the IS and AD equations and discuss the reasons for their slopes.

Reference no: EM13897775

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