An economy is initially at the natural level of output

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a. An economy is initially at the natural level of output. There is an increase in government spending. Use the ISLM model to illustrate both the short-run and long-run impact of this policy change. Be sure to label: i. the axes; ii. the curves; iii. the initial equilibrium, iv. the short-run equilibrium, and v. the terminal equilibrium.

b. Explain in words the short-run and long-run impact of the change in government spending on output and interest rates.

Reference no: EM13773831

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