11-01-20

11-01-20 - Two Modes Of Analysis The Classical Model...

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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.)
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r Y Y s , FE Y 0 =1500 The Supply Curve For The Goods Market Determines The Equilibrium Value Of Y (GDP).
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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
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r Y Y d , IS Y s , FE Y 0 =1500 .06 LM mst=5,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 .
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r Y Y d , IS LM’ mst=5,p=.9 Y s , FE Y 0 .06 LM mst=5,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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r Y Y d , IS LM’ mst=5.1,p=1 Y s , FE Y 0 .06 LM
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11-01-20 - Two Modes Of Analysis The Classical Model...

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