Answer to Question #184130 in Macroeconomics for luntu bharaza

Question

n the U.S., President Biden recently approved a $1.9 trillion stimulus package aimed at getting the economy going. U.S. workers who earned less than $ 75 000 a year in 2019 each received a $ 1 400 stimulus check over the past few weeks. Use the IS-LM-BP model to explain what this can mean for the levels of output/income and interest rates in South Africa. Draw the graph and explain the complete chain reaction. 

Answer 1

IS-LM model is for closed economy and IS-LM-BOP is an open economy model.

This model helps to know the difference between perfect capital mobility and imperfect capital mobility and also in fixed exchange rates and flexible exchange rates system.

In the U.S., President Biden recently approved a $1.9 trillion stimulus package aimed at getting the economy going. U.S. workers who earned less than $ 75 000 a year in 2019 each received a $ 1 400 stimulus.

Effect on the levels of output/income and interest rates in South Africa. 

IN SHORT RUN,

If the POTUS increases the government expenditure shifting out the IS curve . There is Increased rates in the USA attracting non-resident to invest in the USA. Residents of South Africa will have less demand of their currency and money supply decreases leading to left shift in LM curve as interest rates increases and output level decreases 

In the long, there is no effect on the interest rate and national output because increase IS will be compensated by an increase LM curve.