1Chapter 9A General Framework for Macroeconomic AnalysisIntroductionThe 3 major markets in the economy: Labor Market (Chapter 3)Goods Market (Chapter 4)Asset Market (Chapter 7)In the previous chapters, we Define the equilibrium for each market Analyze the factors that affect the equilibrium of a particular marketIgnore the linkages between different markets. IntroductionThis kind of analysis is called partial equilibrium analysis. In this chapter, we put these 3 markets together into a single framework that allows us to analyze them simultaneously. A situation in which all 3 markets are in equilibrium at the same time is called general equilibrium. IntroductionWe want to highlight 3 main variables:Real output / Real income (Y)Real interest rate (r)General price level (P) The framework that we use is called the IS-LM-FE framework.The IS Curve (Goods Market)Recall from Chapter 4 that the goods market is in equilibrium when the national saving and aggregate investment are equal. Graphically, the equilibrium is represented by the intersection point between the upward-sloping saving curveand the downward-sloping investment curve. Goods Market EquilibriumReal Interest Rate, rAggregate Investment, IInvestment CurveS (Y = 4,000)E7%
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