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explain in words what happens to the IS and LM curves

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explain in words what happens to the IS and LM curves and the nominal interest rate in the domestic economy, and then to the exchange rate between the domestic economy and the rest of the world in the following situations. [Remember that a weaker currency means it takes more to buy the foreign currency while the foreign currency is getting stronger when it takes fewer foreign currency units to buy the domestic currency.] 1) the domestic government increases spending, 2) the domestic central bank decreases the money supply, 3) the foreign central bank expands their money supply more slowly as compared to the domestic central bank. Using this analysis explain why the Euro has strengthened compared to the dollar.

 

Paper#21354 | Written in 18-Jul-2015

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