im24 - Chapter 24 Linking the Financial System and the...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 24 Linking the Financial System and the Economy: The IS-LM-FE Model Overview Chapters 24 and 25 present a condensed discussion of the IS-LM and AD-AS models of intermediate macroeconomics. This material provides the basis for an analysis of the roles of money and financial institutions in the macroeconomy, which appears in the following three chapters. In courses where few students have seen this material before, the instructor needs to make a decision about whether to omit these chapters and be content with the less formal discussions of the interactions between money, financial institutions, and the macroeconomy presented in earlier chapters or to plunge in and attempt to thoroughly cover the material. In the latter case, it will probably be necessary to devote considerable class time to the material, as the topics covered make up the greater part of the typical intermediate macroeconomics course. In courses where most students have previously taken an intermediate macroeconomics course, the material in these chapters may be covered quickly as a refresher. The chapter carefully derives the IS and LM curves and the FE line. The determinants of the positions and slopes of the curves are discussed, as are the key factors that cause the curves to shift. Long-run equilibrium is presented and the way in which the price level moves to restore equilibrium in the long run is discussed. The presentation carefully distinguishes among closed economies, small open economies, and large open economies. Outline I. A Model for Goods and Assets Markets: Assumptions A) The IS-LM-FE model is a model of behavior in the market for goods and services and in the market for financial assets. B) Economists refer to general equilibrium as an outcome in which all the markets in the economy are in equilibrium at the same time. C) The goods market includes trade in all goods and services that the economy produces at a particular point in time. D) The money market includes trade in all assets used as the medium of exchange. E) The nonmoney asset market includes trades of assets other than money that are stores of value. II. The IS Curve A) The goods market is in equilibrium when current output supplied equals aggregate demand: Y = C + I + G , where Y is current output, C is national consumption, I is national investment, and G is government purchases. B) When the goods market is in equilibrium national saving equals national investment: S = I .
Background image of page 1

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

View Full DocumentRight Arrow Icon
139 Hubbard • Money, the Financial System, and the Economy, Sixth Edition C) The determinants of national saving are current output, household consumption, spending, and government purchases. 1. National saving increases when current income or current output rises. 2. A rise in expected future income raises national consumption, which causes national saving
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 7

im24 - Chapter 24 Linking the Financial System and the...

This preview shows document pages 1 - 3. Sign up to view the full document.

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