CHAPTER 5
Goods and Financial Markets:
The IS-LM Model
1

This
** preview**
has intentionally

**sections.**

*blurred***to view the full version.**

*Sign up*
1. The Goods Market and
h
IS R
l
i
the IS Relation
2

1 1 Assumptions
1.1 Assumptions
R
ll A
ti
f Ch 3
Recall Assumptions of Ch.3
1.
Assume that all firms produce the same good.
2.
Assume that firms are able and willing to
produce any amount of output that is
demanded without requiring any changes in
prices. (This assumption is maintained until
Ch. 6)
3. Assume that the economy is closed (i.e.,
3.
Assume that the economy is closed (i.e.,
X=IM=0). [This assumption is dropped in Ch
18]
3

This
** preview**
has intentionally

**sections.**

*blurred***to view the full version.**

*Sign up*