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.

Answer the questions about keynesian theory, market economics, and government policy. keynes believed that there were "sticky" wages and that recessions are caused by increases in prices. decreases in supply. decreases in aggregate demand (ad). increases in unemployment. keynes believed the government should increase ad through increased government spending, but not tax cuts. control wages to increase employment because of sticky wages. increase employment through tax cuts only. increase as through tax cuts. increase ad through either increased government spending or tax cuts. intervene when individual markets fail by controlling prices and production.