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Unformatted text preview: 1 14-1 The IS LM Model, Part 3 14-2 Agenda General Equilibrium in the IS LM Model 14-3 Equilibrium in the Labor Market Equilibrium in the labor market leads to employment at its full-employment level ( ) and output at its full-employment level ( ) . The full employment level of output is determined by the full-employment level of employment and the current levels of capital and productivity. N Y 14-4 The FE Line 2 14-5 The FE Line Factors that shift the FE line: The full-employment line shifts right because of: A beneficial supply shock, An increase in labor supply, and/or An increase in the capital stock. 14-6 Equilibrium in the Goods Market The goods market is in equilibrium when desired investment, I d , equals desired national saving, S d . That is, when I d = S d . If the goods market is not in equilibrium, then economic output adjusts to bring about equilibrium. 14-7 The IS Curve 14-8 The IS Curve Factors that shift the IS curve: The IS curve shifts to the right because of: an increase in expected future output, an increase in wealth, an increase in government purchases, 3...
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This note was uploaded on 07/29/2010 for the course UGBA 100b taught by Professor Wood during the Summer '10 term at University of California, Berkeley.
- Summer '10