Download Chapter Eight IS-LM Model

Chapter Eight
IS-LM Model
The Structure of the IS-LM Model
Income
Assets
Markets
Money
Demand
Money
Supply
Monetary
policy
Goods
Market
AD=
C+I+G+NX
Fiscal
policy
Output
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
AD
E2
AD2
AD1
E1
i
i1
Y1
Y2
Y
E1
IS Curve
E2
i2
Y
Y1
Y2
AD
E2’
AD2
E2
AD1
E1’
E1
O
Y1
Y2
Y
A Shift in the IS Curve
i
△Y = α△A
E1’
E1
E2’
E2
IS’
IS
Y1
Y2
Y1’
Y2’
Y
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
Derivation of the LM Curve
i
LM
E2
E1
i2
i1
Y1
Y2
L’
i
Y
L
E2
E1
M/P
L
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
A Shift in the LM Curve
i
i
LM
L’
Ms
Ms1
LM1
L
E2
E1
E2’
E1’
Y1
Y2
Y
L/Ms
Changes in the Equilibrium Levels
Adjustment Toward Equilibrium
Two Assumptions
Disequilibrium and Adjustment
Characters of the Adjustment Process
Chapter Nine
Monetary and Fiscal Policy
1. Monetary Policy
The Effects of the Change in Money
Supply
The Transmission Mechanism
The Liquidity Trap
The classical Case
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
i
IS
Crowding out effects
LM
IS’
Y
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