lecture 10_EC332[1] - Lecture 10 Monetary Policy Classical...

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10/15/2010 1 Lecture 10 Monetary Policy: Classical and Keynesian M s vs. i Targets When LM Unstable 1. LM Unstable: fluctuates from LM ' to LM '' 2. i target at i *: Y = Y * 3. M target: Y fluctuates from Y M ' to Y M '' 4. Y fluctuation is less with i target Conclusion: If LM curve is more unstable than IS curve, i target is preferred
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10/15/2010 2 M s vs. i Targets When IS Unstable 1. IS Unstable: fluctuates from IS ' to IS '' 2. i target at i *: Y fluctuates from Y I ' to Y I '' 3. M target, LM = LM *: Y fluctuates from Y M ' to Y M '' 4. Y fluctuation is less with M target Conclusion: If IS curve is more unstable than LM curve, M s target is preferred The ISLM Model in the Long Run Panel (a) 1. M s up, LM left to LM 2 , go to point 2, i to i 2 , Y to Y 2 2. Because Y 2 > Y n , P , M/P , LM back to LM 1 , go back to point 1 Panel (b) 1. G , IS right to to IS 2 , go to point 2 where i = i 2 and Y = Y 2 2. Because Y 2 > Y n , P , M / P , LM left to LM 2` , go to point 2', i = i 2` and Y = Y n .
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This note was uploaded on 02/29/2012 for the course ECONOMICS EC 3332 taught by Professor Shandre during the Spring '12 term at National University of Singapore.

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lecture 10_EC332[1] - Lecture 10 Monetary Policy Classical...

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