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Chapter Eight IS-LM Model

Chapter Eight IS-LM Model. The Structure of the IS-LM Model. Income. Assets Markets. Goods Market. Money Demand. Money Supply. Output. AD= C+I+G+NX. Monetary policy. Fiscal policy. 1. The Goods Market and the IS Curve IS Curve: Definition

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Chapter Eight IS-LM Model

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  1. Chapter EightIS-LM Model

  2. The Structure of the IS-LM Model Income Assets Markets Goods Market Money Demand Money Supply Output AD= C+I+G+NX Monetary policy Fiscal policy

  3. 1. The Goods Market and the IS Curve • IS Curve: Definition • Investment and the Interest Rate • The Investment Demand Schedule • The Interest Rate and AD: • The IS Curve • Derivation of the IS Curve The Slope of the IS Curve The Position of the IS Curve Positions off the IS Curve

  4. AD E2 AD2 AD1 E1 Y Y1 Y2 i E1 i 1 IS Curve E2 i 2 Y Y1 Y2

  5. E2’ AD2 AD E2 AD1 E1’ E1 Y O Y1 Y2

  6. i A Shift in the IS Curve △Y = α△A E1’ E1 E2’ E2 IS’ IS Y Y1 Y2 Y1’ Y2’

  7. 2. The Assets Markets and the LM Curve • LM Curve: Definition • The Wealth Constraint • Money: Demand and Supply • The curve of the money demand • Money Market Equilibrium and the LM Curve

  8. i i L’ LM Derivation of the LM Curve L E2 i2 E2 E1 i1 E1 L M/P Y1 Y2 Y

  9. Derivation of the LM Curve • The Slope of the LM Curve • The Position of the LM Curve • Positions off the LM Curve 3. Simultaneous Equilibrium in the Goods and Assets Markets: IS-LM Model

  10. A Shift in the LM Curve i i Ms1 LM Ms L’ LM1 L E2 E1 E2’ E1’ Y Y1 Y2 L/Ms

  11. Changes in the Equilibrium Levels • Adjustment Toward Equilibrium Two Assumptions Disequilibrium and Adjustment Characters of the Adjustment Process

  12. Chapter NineMonetary and Fiscal Policy 1. Monetary Policy • The Effects of the Change in Money Supply • The Transmission Mechanism • The Liquidity Trap • The classical Case

  13. 2. Fiscal Policy and Crowding Out • An Increase in Government Spending • Crowding Out Effects • The Extent of Crowding Out • The Liquidity Trap • The Classical Case and Crowding Out

  14. i IS’ LM Crowding out effects IS Y

  15. Is Crowding Out Likely? An Economy with Unemployment Monetary Accommodation An Fully Employed Economy 3. The Policy Choice and Mix • Policy Choice • The Mix of Fiscal and Monetary Policy

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