1. The IS curve is based on the goods market: Y C, + mpc (Y - T) + la-2r +G. Assume that the mpe 80. Draw the IS curve, making sure to label the graph correctly. (a) If government spending G rises by $45 billion, by how much does the IS curve shift to the right? Explain. (b) As shown, for every decline in r (the real interest rate) by one unit investment spending I ries by $2 billion. What is the slope of the IS curve under these conditions? Explain.

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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1. The IS curve is based on the goods market: Y- Co + mpe (Y -T) + lo-2r+G. Asume that
the mpe= 80. Draw the IS curve, making sure to label the graph correctly.
(a) If government spending G rises by $45 billion, by how much does the IS curve shift to the
right? Explain.
(b) As shown, for every decline in r (the real interest rate) by one unit investment spending I
rises by $2 billion. What is the slope of the IS curve under these conditions? Explain.
Transcribed Image Text:1. The IS curve is based on the goods market: Y- Co + mpe (Y -T) + lo-2r+G. Asume that the mpe= 80. Draw the IS curve, making sure to label the graph correctly. (a) If government spending G rises by $45 billion, by how much does the IS curve shift to the right? Explain. (b) As shown, for every decline in r (the real interest rate) by one unit investment spending I rises by $2 billion. What is the slope of the IS curve under these conditions? Explain.
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