ch10c - 11/6/10 Lions and deer Lions and Deer Let D denote...

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11/6/10 1 slide 0 Lions and deer Let D denote the population of deer An equation that characterize the population growth of deer: Δ D/D = 3 – 0.5 L L: population of lion L: exogenous CHAPTER 10 Aggregate Demand I slide 1 Lions and Deer Population growth of lions: Δ L/L = - 5 + 0.8 D The more deer, the higher the population growth of lions. We are treating D as exogenous. CHAPTER 10 Aggregate Demand I slide 2 Lions and deer Which variable is really exogenous? Neither The interaction of the lions and deer jointly determines the population of both. Both are endogenous. The determined population of both constitute some “wild life equilibrium.” CHAPTER 10 Aggregate Demand I slide 3 IS – LM model IS curve: When the goods market is equilibrium, the level of GDP is a function of the real interest rate. The higher the interest rate, the lower the investment spending, and the lower the GDP. We treat the interest rate as if it were exogenous. Neither the interest rate nor GDP can be uniquely determined. CHAPTER 10 Aggregate Demand I slide 4 IS – LM model LM curve: When the money market is in equilibrium, the level of the real interest rate is a function of
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ch10c - 11/6/10 Lions and deer Lions and Deer Let D denote...

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