10-01-12c (6)

# 10-01-12c (6) - The shift(portrayed by the red arrows of...

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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 d , IS LM’ mst=5.1,p=1 Y s , FE Y 0 .06 LM mst=5,p=1 LM” mst=5.1,p=1.1 This figure shows “monetary neutrality.” The shift (portrayed by the red arrows) of the LM curve from its blue position to the gold position, caused by a RISE in the money supply of .1, is offset by a rise in the price level of .1, which shifts LM back (green arrows) to its original position and all real variables are unchanged in value.
r Y Y d , IS LM’ md0=2.55,p=1 Y s , FE Y 0 r e LM md0=2.65,p=1 LM” md0=2.55,p=1.1 This figure shows “monetary near-neutrality.”

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Unformatted text preview: The shift (portrayed by the red arrows) of the LM curve from its blue position to the gold position, caused by a DECREASE in money demand of .1, is offset by a rise in the price level of .1, which shifts LM locus back (green arrows) to its original position and all real variables (except for money holdings) are unchanged in value. r Y Y d , IS LM’ md0=2.55 mst=4.9, p = 1 Y s , FE Y r e LM md0=2.65,mst=5 p=1 LM” md0=2.55,mst=4.9 p = 1 This figure shows “monetary near-neutrality.” The shift (portrayed by the red arrows) of the LM curve from its blue position to the gold position, caused by a DECREASE in money demand of .1, is accommodated by a reduction in the money supply of .1, which shifts LM back (green arrows) to its original position and all real variables (except for money holdings) are unchanged in value....
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10-01-12c (6) - The shift(portrayed by the red arrows of...

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