Disney + Books
Mayor Leodore Lionheart just got promoted! He wants to increases taxes to fund local businesses (including Nick’s very own popsicle side hustle) across Zootopia. What effect does this have on r and Y? Explain which (if any) of the ISLM curves shift.
If taxes increase, Y (output) decreases, so the IS curve shifts to the left → this leads to lower interest rates to encourage people to spend more. The LM curve does not shift.
After Gringotts suffered from Voldemort’s attack, they decided to bolster their security measures. To fund these improvements, they convinced the Ministry of Magic to allow them to hold a smaller portion of their funds in reserve. How does this impact interest rates and output, and which, if any, of the IS-LM curves are affected?
Lower reserve ratio means the money supply increases, so the point where it intersects with the LM curve goes down, meaning interest rates decrease. Also, the LM curve shifts to the right. The IS curve does not shift.
Winnie the Pooh is starting his honey business! All is going well, but suddenly, the price level of all goods in Hundred Acre Wood starts to increase. What effect does this have on r and Y? Explain which (if any) of the ISLM curves shift.
If the price level increases, M/P decreases, so interest rates rise. The LM curve thus shifts up, which is to the left. The IS curve is not affected.
Exports increase and Remy starts buying local vegetables instead of imported vegetables to make ratatouille. But Remy is lucky because the local vegetables cost just the same as the imported vegetables, despite being higher quality. What effect does this have on r and Y, explain which (if any) of the ISLM curves shift.
Exports result in an increase in GDP and interest rates rise, so the IS curve shifts to the right. The change in what consumers buy does not impact either curve because consumption isn’t actually affected. The LM curve doesn’t shift.
In the Hunger Games, the Capitol (the government) has crushed the rebellion and the “Dark Days” are over. The Capitol but is desperate to maintain its image, so it spends money to help rebuild the Capitol and placate its people. At the same time it decreases the price level so the Capitol people can still afford daily necessities. What effect does this have on r and Y, explain which (if any) of the ISLM curves shift.
Government spending increases, so output increases, so the IS curve shifts right, and interest rates increase. If the price level decreases, M/P increases, and the LM curve shifts to the right. Because the right shift in the IS curve to to increase interest rates, and the right shift in the LM curve tends to decrease interest rates, the change in r is inconclusive without additional information.