I need to know how IS/MP model works?

Question

Please help with:

Describe how, if at all, each of the following developments affect the IS and/or MP curves. For these questions, assume that the price level is fixed at Pbar. On the diagrams, illustrate both the money market and the IS/MP diagram (horizontally). Aso, for these questions, draw the relevant changes in either the money market (for an MP shift) or the goods market (for an IS shift).

a) the central bank changes its monetary policy rule so that it sets a lower level of the real interest rate at a given level of output than before.

b) government purchases fall, and at the same time the federal reserve changes its policy rule to set a higher real interest rate at a given level of output than before.

c) the demand for money increases (consumer preferences change, so that at a given level of I and Y they want to hold more real balances than before).

d) the government decides to vary its purchases in response to the state of the economy, decreasing G when Y rises and increasing it wht Y falls. Please show how this affects the slope of the relevant curve.

e) the federal reserve changes its policy rule to be more aggressive in responding to changes in output. specifically, it decides that it will increase the real interest rate by more than before if output rises, and cut it by more than before if output falls. Please show how this affects the slope of the relevant curve.

Answer 1

a) LM curve shifts outward and output expands

b)Both curves will shift inward, output will contract, new eq interest rate may increase, decrease or may not change.

c)that means i is lower than before because people are holding money rather than security now. LM shifts rightward.

d)if g decreases when y increases, then IS curve will be more horizontal, and if g increases when y increases, in this regard IS curve will be more steeper at lower levels of first given Y.

e) Same effect as in d. LM curve's elasticity should be wieved now.