Question 2 ( 14 points ) Suppose Wal Mart and other major stores will not accept credit cards and consumers will have to use cash more frequently in…

Question 2. (14 points) Suppose Wal-Mart and other major stores will not accept credit cards and consumers will have to use cash more frequently in transactions.

a. (7 points) How do you use the liquidity preference diagrams/model to show how the event changes money demand and the LM curve. Can you Explain the answer using both words and diagrams.

b. (7 points) How do you use the IS-LM diagrams/model to determine the short-run effects on income (Y), interest rate (r), consumption (C), investment (I), and the unemployment rate.

Question 2 ( 14 points ) Suppose Wal Mart and other major stores will not accept credit cards andconsumers will have to use cash more frequently in transactionsa . (7 points ) Use the liquidity preference diagrams model to show how the event changesmoney demand and the IM curve , Explain your answer using both words and diagramsb . ( 7 points ) Use the IS – LM diagrams model to determine the short -run effects on income ( )interest rate ( ) , consumption ( C ) investment ( I ) , and the unemployment rate

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