mankiw7e-chap11

mankiw7e-chap11 - Chapter 11 Aggregate Demand II: Aggregate...

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Aggregate Demand II: Aggregate Demand II: Applying the Applying the IS IS -LM LM Model Model Chapter 11 Chapter 11 Context Chapter 9 introduced the model of aggregate demand and supply. Chapter 10 developed the IS-LM 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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Policy analysis with the IS - LM model We can use the IS-LM model to analyze the effects of fiscal policy: G and/or T monetary policy: M ( ) ( ) Y C Y T I r G ( , ) M P L r Y IS Y r LM r 1 Y 1 causing output & income to rise. IS 1 An increase in government purchases 1. IS curve shifts right Y r LM r 1 Y 1 1 by 1 MPC G IS 2 Y 2 r 2 1. 2.
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This note was uploaded on 12/04/2011 for the course ECON 305 taught by Professor Terrell during the Spring '08 term at Maryland.

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mankiw7e-chap11 - Chapter 11 Aggregate Demand II: Aggregate...

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