ECS2602_04_Goods_and_Financial_markets_the_IS-LM_model

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Slide 1 of 18 Slide 1 of 22 ECS 2602 Macroeconomics Errol Goetsch 078 573 5046 [email protected] Lorraine 082 770 4569 [email protected] Boston | UNISA 2015 Unit 4 – The Goods and Financial Markets: The IS-LM Model “Investment–saving" (IS) and "liquidity preference–money supply" (LM)
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Slide 2 of 22 01 – Overview of the SA macro-economy 02 – The Goods Market 03 – The Financial Markets 04 – The IS-LM model 05 – Openness in goods and financial markets 06 – The goods market in an open economy 07 – Output, the interest and the exchange rates 08 – The labour market 09 – The AS-AD model Macroeconomics Learning Units 1- 18 5.0 Introduction The 3 aims of macroeconomic policy 5.1 The IS Relation and the Goods Market Investment, Sales and the Interest Rate Determining Output Figure 5.1: Equilibrium in the Goods Market Figure 5.2: Deriving the IS Curve Figure 5.3: Shifts of the IS Curve 5.2 The LM Relation and Financial Market Determining the Interest Rate Real money, real income and the interest rate Figure 5.4: Deriving the LM Curve Figure 5.5: Shifts of the LM Curve 5.3 Joining the IS and L Relations Figure 5.6: The IS-LM Model Figure 5.7: Fiscal policy, activity and the Interest Rate Figure 5.8: Monetary policy, activity and Interest Rate 5.4 Using a Policy Mix Table 5.1: The effects of Fiscal and Monetary Policy Figure 4: The US recession of 2001 Figure 5.9: Empirical effects 5.5 How does the IS-LM Model fit the facts? 5.6 Key Terms
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Slide 3 of 22 5.0 Introduction The 3 aims of Macro-economists Factor Market Household Goods Market Firm Pric e Quantity SUPPLY Price Quantity Price Quantity DEMAND Price Quantity DEMAND Sell Buy Buy Sell Price Quantity DEMAND & SUPPLY SUPPLY Full employment of the nation’s resources, including labour, land and capital. Price level stability, meaning a low (generally between 2% and 4%) inflation rates Economic growth, meaning a year on year increase in the nation’s output of goods and services and the average income of the nation’s people.
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Slide 4 of 22 5.0 Introduction The IS relation and The Equilibrium Condition in the Goods Market Factor Market Household Goods Market Firm Price Quantity SUPPLY Price Quantity Price Quantity DEMAND Price Quantity DEMAND Sell Buy Buy Sell Price Quantity DEMAND & SUPPLY SUPPLY The IS relation Equilibrium in the goods market exists when production, Y = the demand for goods, Z . The Equilibrium Condition (In the simple model, the interest rate did not affect the demand for goods. The equilibrium condition was given by: (1) Y = C(Y – T) + I + G
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Slide 5 of 22 5.1 The Goods Market and the IS Relation Investment, Sales, and the Interest Rate Factor Market Household Goods Market Firm Price Sell Buy Buy Sell Price Quantity DEMAND & SUPPLY Investment depends primarily on 2 factors: The level of sales (+) The interest rate (-) (2) I = I (Y, i) (x,-) (1) Y = C(Y – T) + I + G Price Quantity DEMAND & SUPPLY
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Slide 6 of 22 5.1 The Goods Market and the IS Relation Determining Output Factor Market Household Goods Market Firm Price Sell Buy Buy Sell Price Quantity DEMAND & SUPPLY
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