Jason + Etienne
What would be the effect of the government substantially increasing investment in nuclear energy? Assume no taxation required.
Overall:
Output increases, and interest rate increases.
IS:
Government spending increases without an increase in taxes, causing output to be higher at every interest rate, which causes the IS curve to shift to the right.
LM:
There would be no significant effect on LM. In the long-run, investing in nuclear power might lead to cheaper energy, decreasing the price level and increasing real money supply. This could potentially lead to a decreased interest rate at every level of output, but the effects would likely be too long-term to be in the scope of the IS-LM model.
The war in Iran is predicted to continue for at least one more month. What is the economic effect of maintaining wartime spending and the resulting supply and confidence shocks? (Assume no increase in taxes.)
Overview:
Output decreases, interest rate is indeterminate/stays the same.
IS:
Government spending increases to fund the war, which increases output at every interest rate, contributing to a rightward shift in the IS curve.
Business confidence falls because of uncertainty and the possibility of oil shocks, which causes consumption and investment to fall, decreasing output at every interest rate.
Result: Technically indeterminate, but the IS curve almost certainly shifts left because the business confidence aspect likely has a substantially greater effect on the economy.
LM:
Inflation caused by oil/supply shocks increases the price level, which decreases real money supply and therefore increases interest rates at every level of output. Therefore, the LM curve shifts up.
What is the economic effect of the Nigerian Football Federations match fixing crackdown? (For Nigeria’s Economy) (Assume no taxes)
The IS curve would shift right
The Nigerian Football Federation is funded by the Nigerian Federal Government, and match-fixing crackdown requires conducting costly investigations, which require grants (aka government spending) from the Nigerian Government.
Sports betting on Nigerian Football is a major part of the Nigerian economy, and people are more likely to consume if they view betting as a fair space.
The LM curve would be unchanged.
Money market is just not effected lol
Overall, interest rates and output would increase.
What was the economic impact FOR MIAMI of LeBron’s “The Decision” in 2010 to switch teams to the Miami Heat?
The IS curve would shift right
Increased jersey and ticket sale consumption, as well as increased employment from an increase in restaurants. (https://jamesmadison.org/king-midas-the-economic-impact-of-lebron-james/#:~:text=A%20study%20conducted%20by%20AEI,effect%20than%20his%20prior%20moves.)
This causes the IS curve to shift right because the same interest rate will lead to higher output from alternative factors (outlined above)
The LM curve would shift up
“The Decision” caused an increase in prices, especially in Real Estate (https://www.miamicondoinvestments.com/900-biscayne-bay/the-lebron-effect-on-downtown-miami-real-estate-prices#:~:text=His%20announcement%20was%20seen%20as,Downtown%20Miami%20in%20recent%20years.)
This causes the LM curve to shift up, the same amount of money has less purchasing power which means it is a FUNCTIONAL decrease of money supply. That increases interest rates because more people buy bonds instead of cash.
All in all, this means there’s an increase in income and interest rates
Graphical depiction in the next slide.
Question 5 (1000): The Misrad Hashikun (משרד הבינוי והשיכון), Israeli Ministry of Construction and Housing, decides to build luxury houses in Tel Aviv. Assume no increase in taxation.
Overall:
Output increases but interest rate is indeterminate.
IS:
Government spending increases to build the luxury housing. This causes output to increase at every interest rate, which shifts the IS curve right. Additionally, investment increases because there will more aggregate demand which further contributes to an increase in output. Taxes remain the same per the prompt.
LM:
The price level of real estate in Tel Aviv decreases, because supply increases which decreases prices. This increases real money supply which decreases the interest rate for any level of output, shifting the LM curve down.