13%20The%20IS%20Curve - 1 13-1 The IS Curve 13-2 Agenda 1....

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon

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

View Full DocumentRight Arrow Icon

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

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 1 13-1 The IS Curve 13-2 Agenda 1. Introduction 2. Planned Expenditures 3. Goods Market Equilibrium 4. The IS Curve 13-3 Introduction So far, the focus has been on how much the economy could produce. Determined by the quantity of the factor inputs and the level of total factor productivity. This is the basis for the economys aggregate supply. 13-4 Introduction The focus now shifts to how much demand is in the economy. This is the basis of the economys aggregate demand. Both aggregate demand and aggregate supply are important for explaining short-run fluctuation is economic activity. 2 13-5 Introduction The first building block to understanding aggregate demand is short-run equilibrium in the goods market. This is represented by the IS curve. The IS curve is the inverse relationship between planned spending and the real interest rate. Start with the concept of planned expenditures. 13-6 Planned Expenditures Actual expenditures, Y, are the total amount of spending on domestically produced goods and services that households, businesses, the government, and foreigners actually make. This equals the total amount of output actually produced in the economy. 13-7 Planned Expenditures Planned expenditures, Y pe , are the total amount of spending on domestically produced goods and serves that households, businesses, the government, and foreigners want to make . This is equivalent to aggregate demand. 13-8 Planned Expenditures The economy will be in equilibrium only when actual expenditures equal planned expenditures, i.e., when: Y = Y pe 3 13-9 Planned Expenditures Planned expenditures, Y pe , include: 1. Consumption expenditures, C, 2. Planned investment spending, I p , 3. Government purchases, G, and 4. Net exports, NX. 13-10 Planned Expenditures Planned expenditures are given by: Y pe = C + I p + G + NX 13-11 Consumption Expenditures Consumption expenditures has 3 components: 1. Durable goods spending , which is spending by households on goods that last 3 years or longer....
View Full Document

This note was uploaded on 09/05/2011 for the course ECON 100B taught by Professor Wood during the Spring '08 term at University of California, Berkeley.

Page1 / 11

13%20The%20IS%20Curve - 1 13-1 The IS Curve 13-2 Agenda 1....

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online