The Open Economy IS-LM
Model
The Mundell-Fleming Model
1
Learning Objectives
1. Understand how what BOP equilibrium is and
how it is represented by BP curve
2. Understand how internal (IS-LM) and
external equilibria interact to produce an
unique over equi
ECON 20020
Macroeconomics 1
1
Lecturer
Vincent Hogan
D205 JHN
Office Hours: Thursday 911 and by
appointment
2
Overview
This course will build on ECON 10020
Many similar themes
But more rigorous treatment
3
Learning Objectives
1. To understand the wo
IS-LM 2: Examples
See Mankiw 12.1 & 12.3
1
Recap: Equilibrium in IS-LM
The IS curve represents
equilibrium in the goods
market.
r
LM
Y = C ( T ) + I (r ) + G
Y
The LM curve represents money
market equilibrium.
r1
IS
M P = L (r ,Y )
The intersection determ
A Review of the Basics
1
Learning Objectives
1. Understand the concept of the National
Income Identities
2. Understand the definition of Unemployment
3. Understand the definition of a price index
4. Understand the concept of Economic
equilibrium and how i
Supply Side
Mankiw Chpt. 10, 14.1
&
Akerlof Book for intuition and
examples
1
Learning Objectives
1. Crucial role for expectations & for time
frame.
Specifically the time it take for prices to adjust
completely is the long run.
2. Policy conclusions of IS
ECON 20020: Problem Set No 1 2012.
SOLUTIONS
1. The IS curve represents:
A) investment and saving when the commodity markets are in disequilibrium.
B) equilibrium in the commodity markets for every combination of interest rates and
output level.
C) the de
Q1: AS and AD
a) The AD curve
CHANGING P AND MS/P
Suppose the general price level changes (and nothing else changes i.e.
ceteris paribus)
The immediate effect is that the Real Money Supply changes:
ms Ms/P so as P increases, real money supply (ms) dec
Reagan Style Tax Cut
Cut personal taxes
Idea is that this will improve incentives
People will work more
Shift the LRAS to the right
Increase Y* and reduce P
Note that SRAS shifts also as expectations adjust to the
new lower level
But cutting taxes will
1ECON 20020: Problem Set No 2.
SOLUTIONS
2
1. The IS curve represents:
A) investment and saving when the commodity markets are in disequilibrium.
B) equilibrium in the commodity markets for every combination of interest rates and
output level.
C) the dete
SEMESTER II- EXAMINATIONS
ACADEMIC YEAR- 2010/2011-
ECON 20020
Intermediate Macroeconomics
Professor Brendan McCabe
Professor David Madden
Dr. Vincent Hogan
Time Allowed: 2 Hours
Instructions for Candidates
Answer any Three (3) Questions
Page 1 of 2
1.
Fo
IS-LM
The Basic Model of Macro
Learning Objections
1. Understand the construction of the IS curve and
how it describes equilibrium in the goods
market
2. Understand the construction of the LM curve
and how it describes equilibrium in the Money
market
3. U
1.
Why do Macroeconomics?
1
Course Learning Objectives
1. To understand the workings of the modern
macroeconomy in the short run
2. We will place emphasis on how a government
can deal with economic shocks especially those
that effect a small open economy