Lecture_March 12_Part 2 - Chapter 11 Aggregate Demand II Applying the IS\u2013LM Model 1 2 3 LEARNING OBJECTIVRES 1 Causes of fluctuations in national

Lecture_March 12_Part 2 - Chapter 11 Aggregate Demand...

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Chapter 11 Aggregate Demand II: Applying the IS–LM Model 1
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LEARNING OBJECTIVRES 1.Causes of fluctuations in national income.i.how to use the IS-LMmodel to analyze the effects of shocks, fiscal policy, and monetary policyii.Interaction between monetary and fiscal policy2.MP curve (MP stands for Monetary policy)3.How the IS-MPmodel determines income and the interest rate in the short run when Pis fixed4.how to derive the aggregate demand curve from the IS-LM model5.several theories about what caused the Great Depression (1929) 4
The LM curve represents money market equilibrium. Equilibrium in the IS - LM model The IS curve represents equilibrium in the goods market. IS Y r LM r 1 Y 1 5
Policy analysis with the IS - LM model fiscal policy: G and/or T monetary policy: M IS Y r LM r 1 Y 1 6
Expansionary fiscal policy Y r 7 LM IS 1 1 y 1 r 1
Expansionary monetary policy Y r 8 LM 1 1 y 1 r 1 IS
epoll: In a closed economy, the monetary transmission mechanism in the IS-LM model is a process whereby an increase in the money supply increases the demand for goods and services: A.by lowering the interest rate so that investment spending increases.B.by increasing government spending on goods and services. 9

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