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Will the change make monetary policy more or less effective

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Reference no: EM13222888

We have assumed that consumption depends only on disposable income. Now suppose that consumptions depend on both disposable income and interest rate. As interest rate increase, consumption decrease.

a. If consumption suddenly begins to depend on interest rate, what is the effect on the slope of the IS curve?

b. Will this change make monetary policy more or less effective? explain

Reference no: EM13222888

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