Lecture 9.pdf - Macroeconomic Analysis for Management Lecture 9 IME IIT Kanpur Goods Market and Money Market the IS-LM Model The previous two major

Lecture 9.pdf - Macroeconomic Analysis for Management...

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Macroeconomic Analysis for Management Lecture 9 IME, IIT Kanpur
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Goods Market and Money Market: the IS-LM Model
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The Goods Market and the IS RelationIn Goods Market equilibrium, we discussed demandZas the sum ofconsumption, investment, and government spending.Z=C+c(Y-T) +I+GWe now let Investment to be affected by ‘i’. Assuming a linear relationbetween investment and interest rate,I=a-bi.Then, in equilibrium,Y=C+c(Y-T) + (a-bi) +G. Why did we writeYon the LHS?
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The Goods Market and the IS RelationIn Goods Market equilibrium, we discussed demandZas the sum ofconsumption, investment, and government spending.Z=C+c(Y-T) +I+GWe now let Investment to be affected by ‘i’. Assuming a linear relationbetween investment and interest rate,I=a-bi.Then, in equilibrium,Y=C+c(Y-T) + (a-bi) +G. Why did we writeYon the LHS?
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The IS Curve and its shifts Income, Output, Y Interest rate, i 0 i Y IS 1 Shifts of the IS Curve An exogenous increases in government expenditure by dG shifts IScurve outward. By how much?
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The IS Curve and its shifts Income, Output, Y Interest rate, i 0 i Y IS 1 Y IS 2 An increase in G increases Y . Shifts of the IS Curve An exogenous increases in government expenditure by dG shifts IScurve outward. By how much?
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The IS Curve and its shifts Income, Output, Y Interest rate, i 0 i Y IS 1 Y IS 2 An increase in G increases Y . By dG (1 - c ) amount. Shifts of the IS Curve An exogenous increases in government expenditure by dG shifts IScurve outward. By how much?
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The IS Curve and its shifts - II Income, Output, Y Interest rate, i 0 IS 1 i Y An increase in T decreases Y . Shifts of the IS Curve An exogenous increase in taxes shifts IS curve inward. By how much?
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The IS Curve and its shifts - II Income, Output, Y Interest rate, i 0 IS 1 i Y An increase in T decreases Y . IS 2 Y By c (1 - c ) dT amount. Shifts of the IS Curve An exogenous increase in taxes shifts IS curve inward. By how much?
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Money Market and LM Relation Recall the equilibrium condition in Money Market: M = | Y L ( i ) The left side is the Money stock in the economy. And the right side shows the demand for money, which depends upon income (positive relation) and interest rate(negative relation).
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Money Market and LM Relation Recall the equilibrium condition in Money Market: M = | Y L ( i ) The left side is the Money stock in the economy. And the right side
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