11-01-25-Figures (2)a (3)

11-01-25-Figures (2)a (3) - Two Modes Of Analysis The...

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Unformatted text preview: Two Modes Of Analysis The Classical Model Assumes That All Prices (I ncluding The Price Of LaborThe Wage Rate) Are Fully Flexible. The Keynesian Model Assumes That Prices Are Given I n The Short Run, And That The Market-Clearing Equation For The Labor Market Can Be I gnored. The Value Of The Price Level I n The Short Run I s Chosen As P = 2.7 (So That I ts Natural Logarithmic Value, p, I s Equal to 1.) r Y Y s , FE Y =1500 The Supply Curve For The Goods Market Determines The Equilibrium Value Of Y (GDP). r Y Y d , I S Y s , FE Y =1500 .06 Adding The Demand Curve, We Determine The Equilibrium Level Of The Interest Rate r Y Y d , I S Y s , FE Y =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 . r Y Y d , I S 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....
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This note was uploaded on 07/16/2011 for the course ECON 2154 taught by Professor Boyer during the Winter '10 term at UWO.

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11-01-25-Figures (2)a (3) - Two Modes Of Analysis The...

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