Re: ISI 2017 key

Posted by Asd1995 on May 26, 2017; 6:59pm
URL: http://discussion-forum.276.s1.nabble.com/ISI-2017-key-tp7604137p7604739.html

I had a look and apparently increase in interest rate increases savings through substitution effect, and inflation decreases savings by income effect. Working in the IS-LM case I don't think inflation analysis was possible or required, hence b should be correct.

Also @abhitesh, I believe the question was New Keynesian model price stickiness, amd it so happens that the new keynesian theory also assumes a upward sloped supply curve so we may be wrong.