11-01-25-Figures

# 11-01-25-Figures - TwoModesOfAnalysis...

This preview shows pages 1–6. Sign up to view the full content.

Two Modes Of Analysis The Classical Model Assumes That All Prices  (Including The Price Of Labor—The Wage  Rate) Are Fully Flexible. The Keynesian Model Assumes That Prices  Are Given In The Short Run, And That The  Market-Clearing Equation For The Labor  Market Can Be Ignored. The Value Of The Price Level In The Short  Run Is Chosen As P = 2.7 (So That Its  Natural Logarithmic Value, p, Is Equal to 1.)

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
r Y Y s , FE Y 0 =1500 The Supply Curve For The Goods Market Determines The Equilibrium Value Of Y (GDP).
r Y Y d , IS Y s , FE Y 0 =1500 .06 Adding The Demand Curve, We Determine The Equilibrium Level Of The Interest Rate

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
r Y Y d , IS Y s , FE Y 0 =1500 .06 LM mst=7,p=1 For Full Equilibrium, The Price Level Must Adjust So As To Slot The LM Curve Through The Intersection Between Y d And Y s .
Y Y d , IS LM’ mst=7,p=.9 Y s , FE 1500 .06 LM mst=7,p=1 The Values For m s T And p Are Not Consistent With The Other Values In The Model For The Gold LM Curve . For The Values On The Blue LM Curve They Are. 1650

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

## This note was uploaded on 07/16/2011 for the course ECON 2154 taught by Professor Boyer during the Winter '10 term at UWO.

### Page1 / 8

11-01-25-Figures - TwoModesOfAnalysis...

This preview shows document pages 1 - 6. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online