9780070109100, Chapter 8 6, Problem 6E

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Chapter 8.6, Problem 6E Step-by-step solution Step 1 of 6 6. (a) The first equation stands, but the second equation should be changed to Ms0 = 0 or kY + L0 - Ms0 = 0 Step 2 of 6 has a smaller numerical value than Step 3 of 6 (c) Yes. Step 4 of 6 (d) With Ms0 changing, we have 0 1 Thus = > 0 and = (1 C')/ 0. Step 5 of 6 (e) Fiscal policy becomes totally ineffective in the new model. Step 6 of 6 (f) Since is numerically smaller than we find that > Thus monetary policy becomes more effective in the new model.