Answering Model-Based Questions
Throughout this course you will be introduced to several models and you will
be expected to apply these models to many situations.
This is a basic guide
focusing on the IS-LM model that shows how these questions should be
answered.
When using a graph to model anything in economics, we are interested firstly
in the displayed variables (that are explicitly modelled on the axes of the
graph), secondly in the variables that are exogenous to the graph (i.e. those
variables that are not on the axes of the graph) and thirdly in the composition
of these variables (e.g. when examining a change in output we are also
interested in how C, I, G have all changed).
Method
For each variable that has changed:
(i.e. where G has increased and T
decreased you must follows steps 1 and 2 for each separately)
(1) How have the curves shifted and how has equilibrium changed in terms of
the values modelled on the axes? (In the case of the IS-LM you are