Answer to Question #115594 in Macroeconomics for ilayda

Question #115594
please explain what happens to economy in the short-run when there is a financial shock that causes the risk premium to increase. Use the appropriate IS-LM model and the relevant graphs to answer this questions.
1
Expert's answer
2020-05-13T11:18:25-0400

If risk premium increase the economy is in recession and interest rates are falling. Investment and incom decreased. As a result:


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