Economics test.

I received a few questions about how to get started on IS-LM problems. Here's a quick guide: 1. If it's a change in money supply (anything the Fed can do, buy bonds, sell bonds, raise/lower

the discount rate, etc.) then it alters money supply, so that moves LM. 2. If it's something that is a prediction about the future, especially relating to prices or

inflation, that's a change in Pe and that moves SRAS Pe is the only exogenous variable we have that moves SRAS. MS is the only exogenous variable we have that moves LM. Everything else is broken down into two categories: 3. If it's something that is related to SPENDING, then it's going to affect IS: Autonomous Consumption, MPC, Desire to Save, Tax Rates (on individuals): These affect C, so they affect IS Autonomous Investment affects I, so that affects IS Government Spending affects G so that affects IS Changes in foreign economies affect exports, so do tariffs, and just generally anything that alters imports or exports affects NX so that affects IS. So if it's spending, it's IS. 4. Finally, if something affects our ability to produce, that will move LRAS. - Technology - Physical Capital / factories / etc - Labor (immigration usually) - Human Capital (Education / health / experience) - Natural Resources (oil, climate, etc.) So: Money supply: LM Spending: IS Expectations: SRAS Production: LRAS