ECO 305: Problem Set 7
David Wiczer
Due Apr 23th at the start of recitation
1 Shifting IS and LM curves
In each of the following scenarios show why/how either the IS or the LM curves
shift. For an IS curve shift, show how the savings curve or the investment
demand curve changes to imply a shift in the IS curve. For an LM curve shift,
show how the liquidity demand or money supply curves shift.
1. The Federal Reserve increases the money supply.
2. The government increases spending
3. Companies en mass decide to retrofit their machinery to pollute less.
4. There is a rebate check, sent as a reduction in taxes to all households.
5. Households all simultaneously find a $20 under the couch cushions.
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