If the government wants to reduce the budget deficit, how can the central bank keep the economy from going into a recession? Use the closed economy IS-LM model to illustrate graphically the impact of both the fiscal policy reducing the deficit and the monetary policy, which prevents output from falling. Label the axes, the curves, the initial equilibrium values, the direction the curves shift, and the terminal equilibrium values.
This question was answered on: May 23, 2022
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