chap12 - Chapter12 Aggregate Demand II Applying the IS-LM Model 1 Context Chapter 10 introduced the model of aggregate demand and supply Chapter 11

chap12 - Chapter12 Aggregate Demand II Applying the IS-LM...

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1 Chapter 12 Aggregate Demand II: Applying the IS - LM Model
2 Context § Chapter 10 introduced the model of aggregate demand and supply. § Chapter 11 developed the IS-LM model, the basis of the aggregate demand curve.
3 IN THIS CHAPTER, YOU WILL LEARN: § how to use the IS - LM model to analyze the effects of shocks, fiscal policy, and monetary policy § how to derive the aggregate demand curve from the IS - LM model § several theories about what caused the Great Depression
4 r   model
5 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 IS Y r LM r 1 Y 1 Y C Y T I r G = - + + ( ) ( ) ( , ) M P L r Y =
6
7 T .
8 M Y 1 Y 2
9 M
10 . G
,
, M
M ,
14 Estimates of fiscal policy multipliers from the DRI macroeconometric model Assumption about monetary policy Estimated value of Y / G Fed holds nominal interest rate constant Fed holds money supply constant 1.93 0.60 Estimated value of Y / T 1.19 0.26

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