the goods and money market in a closed economy: the is-lm
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The goods and money market in a closed economy The IS-LM
Model Dr Osakede
Bowen University
Closed economy
bull The IS-LM model in a closed economy is based on the assumption that the economy does not interact with the rest of the world That is there is no international trade or export and import
The IS and LM relation
The goods market the IS curve
bull Demand for goods C(YD) + I + G
bull where YD = Y 1048576 T is the disposable income
bull Supply of goods Y
bull Equilibrium Y = C(Yd) + I + G
The goods market Investment
bull Investment is not constant It depends primarily on two factors
bull Production (+)
bull Interest rate (-)
bull the higher the interest rate the more expensive it is to borrow
bull in order to invest the lower the level of investment
bull Investment function I = I (Y i )
(+-)
The goods market Determining output
bull The demand for goods is C (Y T) + (Y i ) + G(+-) (+-)
the demand for goods is increasing in Y (incomeproduction)
The goods market Determining output
The goods market IS relation
The goods market IS relation
The goods market IS relationbull Effect of increase in the interest rate
The goods market IS relationbull Construction of the IS Curve
The goods market IS relationbull Construction of the IS Curve
The goods market Shifts in the IS curve bull Change in taxes
The goods market Shifts in the IS curve bull Change in taxes
The goods market Shifts in the IS curve bull Shifts in other components
The moneyfinancial market LM curve
The moneyfinancial market LM curve
Equilibrium MS = MD = M = NYL(i)
The moneyfinancial market LM Relation
The moneyfinancial market LM Relation
The moneyfinancial market LM Relation
The moneyfinancial market LM Relation
The moneyfinancial market Shifts of the LM Curve
The moneyfinancial market Shifts of the LM Curve
The moneyfinancial market Shifts of the LM Curve
The IS-LM Model Equilibrium
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary and Fiscal Policy
The IS-LM Model Policy Mix
bull The combination of fiscal and monetary policy is called the policy mix
The IS-LM Model Policy Mix
bull With fiscal contraction (fall in government spending) the IS curve shifts downward from IS to ISrsquo and equilibrium with the LM moves to Arsquo with a lower output level Yrsquo This implies a lower interest rate even in the money market To restore equilibrium due to shift in the IS that is to maintain the same level of interest rate at i0 the LM curve has to shift outward to make interest rate rise and for this to happen there has to be a contractionary monetary policy that reduces money supply
The IS-LM Model Policy Mix
Closed economy
bull The IS-LM model in a closed economy is based on the assumption that the economy does not interact with the rest of the world That is there is no international trade or export and import
The IS and LM relation
The goods market the IS curve
bull Demand for goods C(YD) + I + G
bull where YD = Y 1048576 T is the disposable income
bull Supply of goods Y
bull Equilibrium Y = C(Yd) + I + G
The goods market Investment
bull Investment is not constant It depends primarily on two factors
bull Production (+)
bull Interest rate (-)
bull the higher the interest rate the more expensive it is to borrow
bull in order to invest the lower the level of investment
bull Investment function I = I (Y i )
(+-)
The goods market Determining output
bull The demand for goods is C (Y T) + (Y i ) + G(+-) (+-)
the demand for goods is increasing in Y (incomeproduction)
The goods market Determining output
The goods market IS relation
The goods market IS relation
The goods market IS relationbull Effect of increase in the interest rate
The goods market IS relationbull Construction of the IS Curve
The goods market IS relationbull Construction of the IS Curve
The goods market Shifts in the IS curve bull Change in taxes
The goods market Shifts in the IS curve bull Change in taxes
The goods market Shifts in the IS curve bull Shifts in other components
The moneyfinancial market LM curve
The moneyfinancial market LM curve
Equilibrium MS = MD = M = NYL(i)
The moneyfinancial market LM Relation
The moneyfinancial market LM Relation
The moneyfinancial market LM Relation
The moneyfinancial market LM Relation
The moneyfinancial market Shifts of the LM Curve
The moneyfinancial market Shifts of the LM Curve
The moneyfinancial market Shifts of the LM Curve
The IS-LM Model Equilibrium
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary and Fiscal Policy
The IS-LM Model Policy Mix
bull The combination of fiscal and monetary policy is called the policy mix
The IS-LM Model Policy Mix
bull With fiscal contraction (fall in government spending) the IS curve shifts downward from IS to ISrsquo and equilibrium with the LM moves to Arsquo with a lower output level Yrsquo This implies a lower interest rate even in the money market To restore equilibrium due to shift in the IS that is to maintain the same level of interest rate at i0 the LM curve has to shift outward to make interest rate rise and for this to happen there has to be a contractionary monetary policy that reduces money supply
The IS-LM Model Policy Mix
The IS and LM relation
The goods market the IS curve
bull Demand for goods C(YD) + I + G
bull where YD = Y 1048576 T is the disposable income
bull Supply of goods Y
bull Equilibrium Y = C(Yd) + I + G
The goods market Investment
bull Investment is not constant It depends primarily on two factors
bull Production (+)
bull Interest rate (-)
bull the higher the interest rate the more expensive it is to borrow
bull in order to invest the lower the level of investment
bull Investment function I = I (Y i )
(+-)
The goods market Determining output
bull The demand for goods is C (Y T) + (Y i ) + G(+-) (+-)
the demand for goods is increasing in Y (incomeproduction)
The goods market Determining output
The goods market IS relation
The goods market IS relation
The goods market IS relationbull Effect of increase in the interest rate
The goods market IS relationbull Construction of the IS Curve
The goods market IS relationbull Construction of the IS Curve
The goods market Shifts in the IS curve bull Change in taxes
The goods market Shifts in the IS curve bull Change in taxes
The goods market Shifts in the IS curve bull Shifts in other components
The moneyfinancial market LM curve
The moneyfinancial market LM curve
Equilibrium MS = MD = M = NYL(i)
The moneyfinancial market LM Relation
The moneyfinancial market LM Relation
The moneyfinancial market LM Relation
The moneyfinancial market LM Relation
The moneyfinancial market Shifts of the LM Curve
The moneyfinancial market Shifts of the LM Curve
The moneyfinancial market Shifts of the LM Curve
The IS-LM Model Equilibrium
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary and Fiscal Policy
The IS-LM Model Policy Mix
bull The combination of fiscal and monetary policy is called the policy mix
The IS-LM Model Policy Mix
bull With fiscal contraction (fall in government spending) the IS curve shifts downward from IS to ISrsquo and equilibrium with the LM moves to Arsquo with a lower output level Yrsquo This implies a lower interest rate even in the money market To restore equilibrium due to shift in the IS that is to maintain the same level of interest rate at i0 the LM curve has to shift outward to make interest rate rise and for this to happen there has to be a contractionary monetary policy that reduces money supply
The IS-LM Model Policy Mix
The goods market the IS curve
bull Demand for goods C(YD) + I + G
bull where YD = Y 1048576 T is the disposable income
bull Supply of goods Y
bull Equilibrium Y = C(Yd) + I + G
The goods market Investment
bull Investment is not constant It depends primarily on two factors
bull Production (+)
bull Interest rate (-)
bull the higher the interest rate the more expensive it is to borrow
bull in order to invest the lower the level of investment
bull Investment function I = I (Y i )
(+-)
The goods market Determining output
bull The demand for goods is C (Y T) + (Y i ) + G(+-) (+-)
the demand for goods is increasing in Y (incomeproduction)
The goods market Determining output
The goods market IS relation
The goods market IS relation
The goods market IS relationbull Effect of increase in the interest rate
The goods market IS relationbull Construction of the IS Curve
The goods market IS relationbull Construction of the IS Curve
The goods market Shifts in the IS curve bull Change in taxes
The goods market Shifts in the IS curve bull Change in taxes
The goods market Shifts in the IS curve bull Shifts in other components
The moneyfinancial market LM curve
The moneyfinancial market LM curve
Equilibrium MS = MD = M = NYL(i)
The moneyfinancial market LM Relation
The moneyfinancial market LM Relation
The moneyfinancial market LM Relation
The moneyfinancial market LM Relation
The moneyfinancial market Shifts of the LM Curve
The moneyfinancial market Shifts of the LM Curve
The moneyfinancial market Shifts of the LM Curve
The IS-LM Model Equilibrium
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary and Fiscal Policy
The IS-LM Model Policy Mix
bull The combination of fiscal and monetary policy is called the policy mix
The IS-LM Model Policy Mix
bull With fiscal contraction (fall in government spending) the IS curve shifts downward from IS to ISrsquo and equilibrium with the LM moves to Arsquo with a lower output level Yrsquo This implies a lower interest rate even in the money market To restore equilibrium due to shift in the IS that is to maintain the same level of interest rate at i0 the LM curve has to shift outward to make interest rate rise and for this to happen there has to be a contractionary monetary policy that reduces money supply
The IS-LM Model Policy Mix
The goods market Investment
bull Investment is not constant It depends primarily on two factors
bull Production (+)
bull Interest rate (-)
bull the higher the interest rate the more expensive it is to borrow
bull in order to invest the lower the level of investment
bull Investment function I = I (Y i )
(+-)
The goods market Determining output
bull The demand for goods is C (Y T) + (Y i ) + G(+-) (+-)
the demand for goods is increasing in Y (incomeproduction)
The goods market Determining output
The goods market IS relation
The goods market IS relation
The goods market IS relationbull Effect of increase in the interest rate
The goods market IS relationbull Construction of the IS Curve
The goods market IS relationbull Construction of the IS Curve
The goods market Shifts in the IS curve bull Change in taxes
The goods market Shifts in the IS curve bull Change in taxes
The goods market Shifts in the IS curve bull Shifts in other components
The moneyfinancial market LM curve
The moneyfinancial market LM curve
Equilibrium MS = MD = M = NYL(i)
The moneyfinancial market LM Relation
The moneyfinancial market LM Relation
The moneyfinancial market LM Relation
The moneyfinancial market LM Relation
The moneyfinancial market Shifts of the LM Curve
The moneyfinancial market Shifts of the LM Curve
The moneyfinancial market Shifts of the LM Curve
The IS-LM Model Equilibrium
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary and Fiscal Policy
The IS-LM Model Policy Mix
bull The combination of fiscal and monetary policy is called the policy mix
The IS-LM Model Policy Mix
bull With fiscal contraction (fall in government spending) the IS curve shifts downward from IS to ISrsquo and equilibrium with the LM moves to Arsquo with a lower output level Yrsquo This implies a lower interest rate even in the money market To restore equilibrium due to shift in the IS that is to maintain the same level of interest rate at i0 the LM curve has to shift outward to make interest rate rise and for this to happen there has to be a contractionary monetary policy that reduces money supply
The IS-LM Model Policy Mix
The goods market Determining output
bull The demand for goods is C (Y T) + (Y i ) + G(+-) (+-)
the demand for goods is increasing in Y (incomeproduction)
The goods market Determining output
The goods market IS relation
The goods market IS relation
The goods market IS relationbull Effect of increase in the interest rate
The goods market IS relationbull Construction of the IS Curve
The goods market IS relationbull Construction of the IS Curve
The goods market Shifts in the IS curve bull Change in taxes
The goods market Shifts in the IS curve bull Change in taxes
The goods market Shifts in the IS curve bull Shifts in other components
The moneyfinancial market LM curve
The moneyfinancial market LM curve
Equilibrium MS = MD = M = NYL(i)
The moneyfinancial market LM Relation
The moneyfinancial market LM Relation
The moneyfinancial market LM Relation
The moneyfinancial market LM Relation
The moneyfinancial market Shifts of the LM Curve
The moneyfinancial market Shifts of the LM Curve
The moneyfinancial market Shifts of the LM Curve
The IS-LM Model Equilibrium
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary and Fiscal Policy
The IS-LM Model Policy Mix
bull The combination of fiscal and monetary policy is called the policy mix
The IS-LM Model Policy Mix
bull With fiscal contraction (fall in government spending) the IS curve shifts downward from IS to ISrsquo and equilibrium with the LM moves to Arsquo with a lower output level Yrsquo This implies a lower interest rate even in the money market To restore equilibrium due to shift in the IS that is to maintain the same level of interest rate at i0 the LM curve has to shift outward to make interest rate rise and for this to happen there has to be a contractionary monetary policy that reduces money supply
The IS-LM Model Policy Mix
The goods market Determining output
The goods market IS relation
The goods market IS relation
The goods market IS relationbull Effect of increase in the interest rate
The goods market IS relationbull Construction of the IS Curve
The goods market IS relationbull Construction of the IS Curve
The goods market Shifts in the IS curve bull Change in taxes
The goods market Shifts in the IS curve bull Change in taxes
The goods market Shifts in the IS curve bull Shifts in other components
The moneyfinancial market LM curve
The moneyfinancial market LM curve
Equilibrium MS = MD = M = NYL(i)
The moneyfinancial market LM Relation
The moneyfinancial market LM Relation
The moneyfinancial market LM Relation
The moneyfinancial market LM Relation
The moneyfinancial market Shifts of the LM Curve
The moneyfinancial market Shifts of the LM Curve
The moneyfinancial market Shifts of the LM Curve
The IS-LM Model Equilibrium
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary and Fiscal Policy
The IS-LM Model Policy Mix
bull The combination of fiscal and monetary policy is called the policy mix
The IS-LM Model Policy Mix
bull With fiscal contraction (fall in government spending) the IS curve shifts downward from IS to ISrsquo and equilibrium with the LM moves to Arsquo with a lower output level Yrsquo This implies a lower interest rate even in the money market To restore equilibrium due to shift in the IS that is to maintain the same level of interest rate at i0 the LM curve has to shift outward to make interest rate rise and for this to happen there has to be a contractionary monetary policy that reduces money supply
The IS-LM Model Policy Mix
The goods market IS relation
The goods market IS relation
The goods market IS relationbull Effect of increase in the interest rate
The goods market IS relationbull Construction of the IS Curve
The goods market IS relationbull Construction of the IS Curve
The goods market Shifts in the IS curve bull Change in taxes
The goods market Shifts in the IS curve bull Change in taxes
The goods market Shifts in the IS curve bull Shifts in other components
The moneyfinancial market LM curve
The moneyfinancial market LM curve
Equilibrium MS = MD = M = NYL(i)
The moneyfinancial market LM Relation
The moneyfinancial market LM Relation
The moneyfinancial market LM Relation
The moneyfinancial market LM Relation
The moneyfinancial market Shifts of the LM Curve
The moneyfinancial market Shifts of the LM Curve
The moneyfinancial market Shifts of the LM Curve
The IS-LM Model Equilibrium
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary and Fiscal Policy
The IS-LM Model Policy Mix
bull The combination of fiscal and monetary policy is called the policy mix
The IS-LM Model Policy Mix
bull With fiscal contraction (fall in government spending) the IS curve shifts downward from IS to ISrsquo and equilibrium with the LM moves to Arsquo with a lower output level Yrsquo This implies a lower interest rate even in the money market To restore equilibrium due to shift in the IS that is to maintain the same level of interest rate at i0 the LM curve has to shift outward to make interest rate rise and for this to happen there has to be a contractionary monetary policy that reduces money supply
The IS-LM Model Policy Mix
The goods market IS relation
The goods market IS relationbull Effect of increase in the interest rate
The goods market IS relationbull Construction of the IS Curve
The goods market IS relationbull Construction of the IS Curve
The goods market Shifts in the IS curve bull Change in taxes
The goods market Shifts in the IS curve bull Change in taxes
The goods market Shifts in the IS curve bull Shifts in other components
The moneyfinancial market LM curve
The moneyfinancial market LM curve
Equilibrium MS = MD = M = NYL(i)
The moneyfinancial market LM Relation
The moneyfinancial market LM Relation
The moneyfinancial market LM Relation
The moneyfinancial market LM Relation
The moneyfinancial market Shifts of the LM Curve
The moneyfinancial market Shifts of the LM Curve
The moneyfinancial market Shifts of the LM Curve
The IS-LM Model Equilibrium
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary and Fiscal Policy
The IS-LM Model Policy Mix
bull The combination of fiscal and monetary policy is called the policy mix
The IS-LM Model Policy Mix
bull With fiscal contraction (fall in government spending) the IS curve shifts downward from IS to ISrsquo and equilibrium with the LM moves to Arsquo with a lower output level Yrsquo This implies a lower interest rate even in the money market To restore equilibrium due to shift in the IS that is to maintain the same level of interest rate at i0 the LM curve has to shift outward to make interest rate rise and for this to happen there has to be a contractionary monetary policy that reduces money supply
The IS-LM Model Policy Mix
The goods market IS relationbull Effect of increase in the interest rate
The goods market IS relationbull Construction of the IS Curve
The goods market IS relationbull Construction of the IS Curve
The goods market Shifts in the IS curve bull Change in taxes
The goods market Shifts in the IS curve bull Change in taxes
The goods market Shifts in the IS curve bull Shifts in other components
The moneyfinancial market LM curve
The moneyfinancial market LM curve
Equilibrium MS = MD = M = NYL(i)
The moneyfinancial market LM Relation
The moneyfinancial market LM Relation
The moneyfinancial market LM Relation
The moneyfinancial market LM Relation
The moneyfinancial market Shifts of the LM Curve
The moneyfinancial market Shifts of the LM Curve
The moneyfinancial market Shifts of the LM Curve
The IS-LM Model Equilibrium
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary and Fiscal Policy
The IS-LM Model Policy Mix
bull The combination of fiscal and monetary policy is called the policy mix
The IS-LM Model Policy Mix
bull With fiscal contraction (fall in government spending) the IS curve shifts downward from IS to ISrsquo and equilibrium with the LM moves to Arsquo with a lower output level Yrsquo This implies a lower interest rate even in the money market To restore equilibrium due to shift in the IS that is to maintain the same level of interest rate at i0 the LM curve has to shift outward to make interest rate rise and for this to happen there has to be a contractionary monetary policy that reduces money supply
The IS-LM Model Policy Mix
The goods market IS relationbull Construction of the IS Curve
The goods market IS relationbull Construction of the IS Curve
The goods market Shifts in the IS curve bull Change in taxes
The goods market Shifts in the IS curve bull Change in taxes
The goods market Shifts in the IS curve bull Shifts in other components
The moneyfinancial market LM curve
The moneyfinancial market LM curve
Equilibrium MS = MD = M = NYL(i)
The moneyfinancial market LM Relation
The moneyfinancial market LM Relation
The moneyfinancial market LM Relation
The moneyfinancial market LM Relation
The moneyfinancial market Shifts of the LM Curve
The moneyfinancial market Shifts of the LM Curve
The moneyfinancial market Shifts of the LM Curve
The IS-LM Model Equilibrium
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary and Fiscal Policy
The IS-LM Model Policy Mix
bull The combination of fiscal and monetary policy is called the policy mix
The IS-LM Model Policy Mix
bull With fiscal contraction (fall in government spending) the IS curve shifts downward from IS to ISrsquo and equilibrium with the LM moves to Arsquo with a lower output level Yrsquo This implies a lower interest rate even in the money market To restore equilibrium due to shift in the IS that is to maintain the same level of interest rate at i0 the LM curve has to shift outward to make interest rate rise and for this to happen there has to be a contractionary monetary policy that reduces money supply
The IS-LM Model Policy Mix
The goods market IS relationbull Construction of the IS Curve
The goods market Shifts in the IS curve bull Change in taxes
The goods market Shifts in the IS curve bull Change in taxes
The goods market Shifts in the IS curve bull Shifts in other components
The moneyfinancial market LM curve
The moneyfinancial market LM curve
Equilibrium MS = MD = M = NYL(i)
The moneyfinancial market LM Relation
The moneyfinancial market LM Relation
The moneyfinancial market LM Relation
The moneyfinancial market LM Relation
The moneyfinancial market Shifts of the LM Curve
The moneyfinancial market Shifts of the LM Curve
The moneyfinancial market Shifts of the LM Curve
The IS-LM Model Equilibrium
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary and Fiscal Policy
The IS-LM Model Policy Mix
bull The combination of fiscal and monetary policy is called the policy mix
The IS-LM Model Policy Mix
bull With fiscal contraction (fall in government spending) the IS curve shifts downward from IS to ISrsquo and equilibrium with the LM moves to Arsquo with a lower output level Yrsquo This implies a lower interest rate even in the money market To restore equilibrium due to shift in the IS that is to maintain the same level of interest rate at i0 the LM curve has to shift outward to make interest rate rise and for this to happen there has to be a contractionary monetary policy that reduces money supply
The IS-LM Model Policy Mix
The goods market Shifts in the IS curve bull Change in taxes
The goods market Shifts in the IS curve bull Change in taxes
The goods market Shifts in the IS curve bull Shifts in other components
The moneyfinancial market LM curve
The moneyfinancial market LM curve
Equilibrium MS = MD = M = NYL(i)
The moneyfinancial market LM Relation
The moneyfinancial market LM Relation
The moneyfinancial market LM Relation
The moneyfinancial market LM Relation
The moneyfinancial market Shifts of the LM Curve
The moneyfinancial market Shifts of the LM Curve
The moneyfinancial market Shifts of the LM Curve
The IS-LM Model Equilibrium
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary and Fiscal Policy
The IS-LM Model Policy Mix
bull The combination of fiscal and monetary policy is called the policy mix
The IS-LM Model Policy Mix
bull With fiscal contraction (fall in government spending) the IS curve shifts downward from IS to ISrsquo and equilibrium with the LM moves to Arsquo with a lower output level Yrsquo This implies a lower interest rate even in the money market To restore equilibrium due to shift in the IS that is to maintain the same level of interest rate at i0 the LM curve has to shift outward to make interest rate rise and for this to happen there has to be a contractionary monetary policy that reduces money supply
The IS-LM Model Policy Mix
The goods market Shifts in the IS curve bull Change in taxes
The goods market Shifts in the IS curve bull Shifts in other components
The moneyfinancial market LM curve
The moneyfinancial market LM curve
Equilibrium MS = MD = M = NYL(i)
The moneyfinancial market LM Relation
The moneyfinancial market LM Relation
The moneyfinancial market LM Relation
The moneyfinancial market LM Relation
The moneyfinancial market Shifts of the LM Curve
The moneyfinancial market Shifts of the LM Curve
The moneyfinancial market Shifts of the LM Curve
The IS-LM Model Equilibrium
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary and Fiscal Policy
The IS-LM Model Policy Mix
bull The combination of fiscal and monetary policy is called the policy mix
The IS-LM Model Policy Mix
bull With fiscal contraction (fall in government spending) the IS curve shifts downward from IS to ISrsquo and equilibrium with the LM moves to Arsquo with a lower output level Yrsquo This implies a lower interest rate even in the money market To restore equilibrium due to shift in the IS that is to maintain the same level of interest rate at i0 the LM curve has to shift outward to make interest rate rise and for this to happen there has to be a contractionary monetary policy that reduces money supply
The IS-LM Model Policy Mix
The goods market Shifts in the IS curve bull Shifts in other components
The moneyfinancial market LM curve
The moneyfinancial market LM curve
Equilibrium MS = MD = M = NYL(i)
The moneyfinancial market LM Relation
The moneyfinancial market LM Relation
The moneyfinancial market LM Relation
The moneyfinancial market LM Relation
The moneyfinancial market Shifts of the LM Curve
The moneyfinancial market Shifts of the LM Curve
The moneyfinancial market Shifts of the LM Curve
The IS-LM Model Equilibrium
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary and Fiscal Policy
The IS-LM Model Policy Mix
bull The combination of fiscal and monetary policy is called the policy mix
The IS-LM Model Policy Mix
bull With fiscal contraction (fall in government spending) the IS curve shifts downward from IS to ISrsquo and equilibrium with the LM moves to Arsquo with a lower output level Yrsquo This implies a lower interest rate even in the money market To restore equilibrium due to shift in the IS that is to maintain the same level of interest rate at i0 the LM curve has to shift outward to make interest rate rise and for this to happen there has to be a contractionary monetary policy that reduces money supply
The IS-LM Model Policy Mix
The moneyfinancial market LM curve
The moneyfinancial market LM curve
Equilibrium MS = MD = M = NYL(i)
The moneyfinancial market LM Relation
The moneyfinancial market LM Relation
The moneyfinancial market LM Relation
The moneyfinancial market LM Relation
The moneyfinancial market Shifts of the LM Curve
The moneyfinancial market Shifts of the LM Curve
The moneyfinancial market Shifts of the LM Curve
The IS-LM Model Equilibrium
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary and Fiscal Policy
The IS-LM Model Policy Mix
bull The combination of fiscal and monetary policy is called the policy mix
The IS-LM Model Policy Mix
bull With fiscal contraction (fall in government spending) the IS curve shifts downward from IS to ISrsquo and equilibrium with the LM moves to Arsquo with a lower output level Yrsquo This implies a lower interest rate even in the money market To restore equilibrium due to shift in the IS that is to maintain the same level of interest rate at i0 the LM curve has to shift outward to make interest rate rise and for this to happen there has to be a contractionary monetary policy that reduces money supply
The IS-LM Model Policy Mix
The moneyfinancial market LM curve
Equilibrium MS = MD = M = NYL(i)
The moneyfinancial market LM Relation
The moneyfinancial market LM Relation
The moneyfinancial market LM Relation
The moneyfinancial market LM Relation
The moneyfinancial market Shifts of the LM Curve
The moneyfinancial market Shifts of the LM Curve
The moneyfinancial market Shifts of the LM Curve
The IS-LM Model Equilibrium
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary and Fiscal Policy
The IS-LM Model Policy Mix
bull The combination of fiscal and monetary policy is called the policy mix
The IS-LM Model Policy Mix
bull With fiscal contraction (fall in government spending) the IS curve shifts downward from IS to ISrsquo and equilibrium with the LM moves to Arsquo with a lower output level Yrsquo This implies a lower interest rate even in the money market To restore equilibrium due to shift in the IS that is to maintain the same level of interest rate at i0 the LM curve has to shift outward to make interest rate rise and for this to happen there has to be a contractionary monetary policy that reduces money supply
The IS-LM Model Policy Mix
The moneyfinancial market LM Relation
The moneyfinancial market LM Relation
The moneyfinancial market LM Relation
The moneyfinancial market LM Relation
The moneyfinancial market Shifts of the LM Curve
The moneyfinancial market Shifts of the LM Curve
The moneyfinancial market Shifts of the LM Curve
The IS-LM Model Equilibrium
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary and Fiscal Policy
The IS-LM Model Policy Mix
bull The combination of fiscal and monetary policy is called the policy mix
The IS-LM Model Policy Mix
bull With fiscal contraction (fall in government spending) the IS curve shifts downward from IS to ISrsquo and equilibrium with the LM moves to Arsquo with a lower output level Yrsquo This implies a lower interest rate even in the money market To restore equilibrium due to shift in the IS that is to maintain the same level of interest rate at i0 the LM curve has to shift outward to make interest rate rise and for this to happen there has to be a contractionary monetary policy that reduces money supply
The IS-LM Model Policy Mix
The moneyfinancial market LM Relation
The moneyfinancial market LM Relation
The moneyfinancial market LM Relation
The moneyfinancial market Shifts of the LM Curve
The moneyfinancial market Shifts of the LM Curve
The moneyfinancial market Shifts of the LM Curve
The IS-LM Model Equilibrium
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary and Fiscal Policy
The IS-LM Model Policy Mix
bull The combination of fiscal and monetary policy is called the policy mix
The IS-LM Model Policy Mix
bull With fiscal contraction (fall in government spending) the IS curve shifts downward from IS to ISrsquo and equilibrium with the LM moves to Arsquo with a lower output level Yrsquo This implies a lower interest rate even in the money market To restore equilibrium due to shift in the IS that is to maintain the same level of interest rate at i0 the LM curve has to shift outward to make interest rate rise and for this to happen there has to be a contractionary monetary policy that reduces money supply
The IS-LM Model Policy Mix
The moneyfinancial market LM Relation
The moneyfinancial market LM Relation
The moneyfinancial market Shifts of the LM Curve
The moneyfinancial market Shifts of the LM Curve
The moneyfinancial market Shifts of the LM Curve
The IS-LM Model Equilibrium
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary and Fiscal Policy
The IS-LM Model Policy Mix
bull The combination of fiscal and monetary policy is called the policy mix
The IS-LM Model Policy Mix
bull With fiscal contraction (fall in government spending) the IS curve shifts downward from IS to ISrsquo and equilibrium with the LM moves to Arsquo with a lower output level Yrsquo This implies a lower interest rate even in the money market To restore equilibrium due to shift in the IS that is to maintain the same level of interest rate at i0 the LM curve has to shift outward to make interest rate rise and for this to happen there has to be a contractionary monetary policy that reduces money supply
The IS-LM Model Policy Mix
The moneyfinancial market LM Relation
The moneyfinancial market Shifts of the LM Curve
The moneyfinancial market Shifts of the LM Curve
The moneyfinancial market Shifts of the LM Curve
The IS-LM Model Equilibrium
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary and Fiscal Policy
The IS-LM Model Policy Mix
bull The combination of fiscal and monetary policy is called the policy mix
The IS-LM Model Policy Mix
bull With fiscal contraction (fall in government spending) the IS curve shifts downward from IS to ISrsquo and equilibrium with the LM moves to Arsquo with a lower output level Yrsquo This implies a lower interest rate even in the money market To restore equilibrium due to shift in the IS that is to maintain the same level of interest rate at i0 the LM curve has to shift outward to make interest rate rise and for this to happen there has to be a contractionary monetary policy that reduces money supply
The IS-LM Model Policy Mix
The moneyfinancial market Shifts of the LM Curve
The moneyfinancial market Shifts of the LM Curve
The moneyfinancial market Shifts of the LM Curve
The IS-LM Model Equilibrium
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary and Fiscal Policy
The IS-LM Model Policy Mix
bull The combination of fiscal and monetary policy is called the policy mix
The IS-LM Model Policy Mix
bull With fiscal contraction (fall in government spending) the IS curve shifts downward from IS to ISrsquo and equilibrium with the LM moves to Arsquo with a lower output level Yrsquo This implies a lower interest rate even in the money market To restore equilibrium due to shift in the IS that is to maintain the same level of interest rate at i0 the LM curve has to shift outward to make interest rate rise and for this to happen there has to be a contractionary monetary policy that reduces money supply
The IS-LM Model Policy Mix
The moneyfinancial market Shifts of the LM Curve
The moneyfinancial market Shifts of the LM Curve
The IS-LM Model Equilibrium
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary and Fiscal Policy
The IS-LM Model Policy Mix
bull The combination of fiscal and monetary policy is called the policy mix
The IS-LM Model Policy Mix
bull With fiscal contraction (fall in government spending) the IS curve shifts downward from IS to ISrsquo and equilibrium with the LM moves to Arsquo with a lower output level Yrsquo This implies a lower interest rate even in the money market To restore equilibrium due to shift in the IS that is to maintain the same level of interest rate at i0 the LM curve has to shift outward to make interest rate rise and for this to happen there has to be a contractionary monetary policy that reduces money supply
The IS-LM Model Policy Mix
The moneyfinancial market Shifts of the LM Curve
The IS-LM Model Equilibrium
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary and Fiscal Policy
The IS-LM Model Policy Mix
bull The combination of fiscal and monetary policy is called the policy mix
The IS-LM Model Policy Mix
bull With fiscal contraction (fall in government spending) the IS curve shifts downward from IS to ISrsquo and equilibrium with the LM moves to Arsquo with a lower output level Yrsquo This implies a lower interest rate even in the money market To restore equilibrium due to shift in the IS that is to maintain the same level of interest rate at i0 the LM curve has to shift outward to make interest rate rise and for this to happen there has to be a contractionary monetary policy that reduces money supply
The IS-LM Model Policy Mix
The IS-LM Model Equilibrium
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary and Fiscal Policy
The IS-LM Model Policy Mix
bull The combination of fiscal and monetary policy is called the policy mix
The IS-LM Model Policy Mix
bull With fiscal contraction (fall in government spending) the IS curve shifts downward from IS to ISrsquo and equilibrium with the LM moves to Arsquo with a lower output level Yrsquo This implies a lower interest rate even in the money market To restore equilibrium due to shift in the IS that is to maintain the same level of interest rate at i0 the LM curve has to shift outward to make interest rate rise and for this to happen there has to be a contractionary monetary policy that reduces money supply
The IS-LM Model Policy Mix
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary and Fiscal Policy
The IS-LM Model Policy Mix
bull The combination of fiscal and monetary policy is called the policy mix
The IS-LM Model Policy Mix
bull With fiscal contraction (fall in government spending) the IS curve shifts downward from IS to ISrsquo and equilibrium with the LM moves to Arsquo with a lower output level Yrsquo This implies a lower interest rate even in the money market To restore equilibrium due to shift in the IS that is to maintain the same level of interest rate at i0 the LM curve has to shift outward to make interest rate rise and for this to happen there has to be a contractionary monetary policy that reduces money supply
The IS-LM Model Policy Mix
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary and Fiscal Policy
The IS-LM Model Policy Mix
bull The combination of fiscal and monetary policy is called the policy mix
The IS-LM Model Policy Mix
bull With fiscal contraction (fall in government spending) the IS curve shifts downward from IS to ISrsquo and equilibrium with the LM moves to Arsquo with a lower output level Yrsquo This implies a lower interest rate even in the money market To restore equilibrium due to shift in the IS that is to maintain the same level of interest rate at i0 the LM curve has to shift outward to make interest rate rise and for this to happen there has to be a contractionary monetary policy that reduces money supply
The IS-LM Model Policy Mix
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary and Fiscal Policy
The IS-LM Model Policy Mix
bull The combination of fiscal and monetary policy is called the policy mix
The IS-LM Model Policy Mix
bull With fiscal contraction (fall in government spending) the IS curve shifts downward from IS to ISrsquo and equilibrium with the LM moves to Arsquo with a lower output level Yrsquo This implies a lower interest rate even in the money market To restore equilibrium due to shift in the IS that is to maintain the same level of interest rate at i0 the LM curve has to shift outward to make interest rate rise and for this to happen there has to be a contractionary monetary policy that reduces money supply
The IS-LM Model Policy Mix
The IS-LM Model Fiscal Policy
The IS-LM Model Fiscal Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary and Fiscal Policy
The IS-LM Model Policy Mix
bull The combination of fiscal and monetary policy is called the policy mix
The IS-LM Model Policy Mix
bull With fiscal contraction (fall in government spending) the IS curve shifts downward from IS to ISrsquo and equilibrium with the LM moves to Arsquo with a lower output level Yrsquo This implies a lower interest rate even in the money market To restore equilibrium due to shift in the IS that is to maintain the same level of interest rate at i0 the LM curve has to shift outward to make interest rate rise and for this to happen there has to be a contractionary monetary policy that reduces money supply
The IS-LM Model Policy Mix
The IS-LM Model Fiscal Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary and Fiscal Policy
The IS-LM Model Policy Mix
bull The combination of fiscal and monetary policy is called the policy mix
The IS-LM Model Policy Mix
bull With fiscal contraction (fall in government spending) the IS curve shifts downward from IS to ISrsquo and equilibrium with the LM moves to Arsquo with a lower output level Yrsquo This implies a lower interest rate even in the money market To restore equilibrium due to shift in the IS that is to maintain the same level of interest rate at i0 the LM curve has to shift outward to make interest rate rise and for this to happen there has to be a contractionary monetary policy that reduces money supply
The IS-LM Model Policy Mix
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary and Fiscal Policy
The IS-LM Model Policy Mix
bull The combination of fiscal and monetary policy is called the policy mix
The IS-LM Model Policy Mix
bull With fiscal contraction (fall in government spending) the IS curve shifts downward from IS to ISrsquo and equilibrium with the LM moves to Arsquo with a lower output level Yrsquo This implies a lower interest rate even in the money market To restore equilibrium due to shift in the IS that is to maintain the same level of interest rate at i0 the LM curve has to shift outward to make interest rate rise and for this to happen there has to be a contractionary monetary policy that reduces money supply
The IS-LM Model Policy Mix
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary and Fiscal Policy
The IS-LM Model Policy Mix
bull The combination of fiscal and monetary policy is called the policy mix
The IS-LM Model Policy Mix
bull With fiscal contraction (fall in government spending) the IS curve shifts downward from IS to ISrsquo and equilibrium with the LM moves to Arsquo with a lower output level Yrsquo This implies a lower interest rate even in the money market To restore equilibrium due to shift in the IS that is to maintain the same level of interest rate at i0 the LM curve has to shift outward to make interest rate rise and for this to happen there has to be a contractionary monetary policy that reduces money supply
The IS-LM Model Policy Mix
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary and Fiscal Policy
The IS-LM Model Policy Mix
bull The combination of fiscal and monetary policy is called the policy mix
The IS-LM Model Policy Mix
bull With fiscal contraction (fall in government spending) the IS curve shifts downward from IS to ISrsquo and equilibrium with the LM moves to Arsquo with a lower output level Yrsquo This implies a lower interest rate even in the money market To restore equilibrium due to shift in the IS that is to maintain the same level of interest rate at i0 the LM curve has to shift outward to make interest rate rise and for this to happen there has to be a contractionary monetary policy that reduces money supply
The IS-LM Model Policy Mix
The IS-LM Model Monetary Policy
The IS-LM Model Monetary Policy
The IS-LM Model Monetary and Fiscal Policy
The IS-LM Model Policy Mix
bull The combination of fiscal and monetary policy is called the policy mix
The IS-LM Model Policy Mix
bull With fiscal contraction (fall in government spending) the IS curve shifts downward from IS to ISrsquo and equilibrium with the LM moves to Arsquo with a lower output level Yrsquo This implies a lower interest rate even in the money market To restore equilibrium due to shift in the IS that is to maintain the same level of interest rate at i0 the LM curve has to shift outward to make interest rate rise and for this to happen there has to be a contractionary monetary policy that reduces money supply
The IS-LM Model Policy Mix
The IS-LM Model Monetary Policy
The IS-LM Model Monetary and Fiscal Policy
The IS-LM Model Policy Mix
bull The combination of fiscal and monetary policy is called the policy mix
The IS-LM Model Policy Mix
bull With fiscal contraction (fall in government spending) the IS curve shifts downward from IS to ISrsquo and equilibrium with the LM moves to Arsquo with a lower output level Yrsquo This implies a lower interest rate even in the money market To restore equilibrium due to shift in the IS that is to maintain the same level of interest rate at i0 the LM curve has to shift outward to make interest rate rise and for this to happen there has to be a contractionary monetary policy that reduces money supply
The IS-LM Model Policy Mix
The IS-LM Model Monetary and Fiscal Policy
The IS-LM Model Policy Mix
bull The combination of fiscal and monetary policy is called the policy mix
The IS-LM Model Policy Mix
bull With fiscal contraction (fall in government spending) the IS curve shifts downward from IS to ISrsquo and equilibrium with the LM moves to Arsquo with a lower output level Yrsquo This implies a lower interest rate even in the money market To restore equilibrium due to shift in the IS that is to maintain the same level of interest rate at i0 the LM curve has to shift outward to make interest rate rise and for this to happen there has to be a contractionary monetary policy that reduces money supply
The IS-LM Model Policy Mix
The IS-LM Model Policy Mix
bull The combination of fiscal and monetary policy is called the policy mix
The IS-LM Model Policy Mix
bull With fiscal contraction (fall in government spending) the IS curve shifts downward from IS to ISrsquo and equilibrium with the LM moves to Arsquo with a lower output level Yrsquo This implies a lower interest rate even in the money market To restore equilibrium due to shift in the IS that is to maintain the same level of interest rate at i0 the LM curve has to shift outward to make interest rate rise and for this to happen there has to be a contractionary monetary policy that reduces money supply
The IS-LM Model Policy Mix
The IS-LM Model Policy Mix
bull With fiscal contraction (fall in government spending) the IS curve shifts downward from IS to ISrsquo and equilibrium with the LM moves to Arsquo with a lower output level Yrsquo This implies a lower interest rate even in the money market To restore equilibrium due to shift in the IS that is to maintain the same level of interest rate at i0 the LM curve has to shift outward to make interest rate rise and for this to happen there has to be a contractionary monetary policy that reduces money supply
The IS-LM Model Policy Mix
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