1.The purpose of this coursework is to examine current fiscal and

1.The purpose of this is to examine current fiscal and monetary policies by the UK government and their effectiveness and impact on GDP and interest rates using graphical and regression analysis - Coursework Example In essence, the IS-LM model is a macro-economic tool demonstrating the relationship between interest rates and real out-put in the goods and services market and the money market. It is a combination of goods market and money-market equilibriums. The aggregate model describes general equilibrium situation in macro-economy. IS-LM model is based on assumption of fixed price level. This implies that general price level will not abruptly adjust when economic conditions alter. Suppose there is an increase in demand. Given supply, the increase in demand should produce an increase in price level (and in quantity exchanged within market). The period within which it stays unaltered is short run. The time series traits of variables using three tests reveal most of variables are stationary with intercept. This captures non-zero mean under alternative hypothesis. Nonetheless, many variables are non-stationary with constant and deterministic time trends. This captures deterministic trends under this alternative. The variables may therefore be regarded as stationary and does not require differencing. The IS Curve is representative of the equilibrium points in goods market, that is, the combinations of r and Y for which investments (I) are equal to savings (S). It is important to remember that investment is negatively related to real interest rate and is non-dependent on level of real output/income. Saving has a positive relationship to real interest rate and further increases with income. Various scholars have argued that the European sovereign debt crisis is traceable to the nineties whereby the 15 member states then, deliberated on the benefits of establishment of a common regional currency (Sgherri & Zoli, 2009). Despite agreeing on certain debt targets, there are many instances where member states out-rightly failed to adhere to the ceiling limits. Despite this obvious violation, no financial sanctions were imposed on