Aggregate Demand II:
Aggregate Demand II:
Applying the
Applying the
IS
IS
LM
LM
Model
Model
Chapter 11
Context
Chapter 9 introduced the model of aggregate
demand and supply.
Chapter 10 developed the
ISLM
model,
the basis of the aggregate demand curve.
The intersection determines
the unique combination of
Y
and
r
that satisfies equilibrium in both markets.
The
LM
curve represents
money market equilibrium.
Equilibrium in the
IS

LM
model
The
IS
curve represents
equilibrium in the goods
market.
(
)
( )
Y
C Y
T
I r
G
( ,
)
M P
L r Y
IS
Y
r
LM
r
1
Y
1
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