INTERMEDIATE MACROECONOMICS

INTERMEDIATE MACROECONOMICS

1. KEYNSIAN MODEL

   • BUILDING THE IS-LM MODEL
     • IS CURVE
       • SHOWS US HOW THE INTEREST RATE EFFECTS
         • PLANNED INVESTMENT, WHICH EFFECTS PLANNED EXPENDITURE IN TURN EFFECTING ACTUAL INCOME
           • STEP 1: DERIVING THE INVESTMENT FUNCTION
             • • Investment Function shows relationship between interest rate and Investment Demand
             • STEP 2: DERIVING THE KEYNSIAN CROSS
               • • Keynsian Cross shows how a change in investment demand effects the Planned Expenditure
                   • And the changes Planned Expenditure will effect the Level of Income
               • STEP 3: DERIVING THE IS CURVE
                 • • The IS curve summarizes the changes in Interest Rate and Income
                     • i.e. the goods market
     • LM CURVE
       • SHOWS US HOW THE INTEREST RATE EFFECTS
         • THE DEMAND FOR REAL MONEY BALANCES
           • STEP 1: DERIVING THE GRAPH OF THE MARKET FOR REAL MONEY BALANCES
             • STEP 2: DERIVING THE LM CURVE
               • • The LM Curve summarizes any changes in the Money Market
                   • IS LM GRAPH
                     • • Combining the IS curve and the LM curve gives
                         • the equilibrium levels of income
                           • and interest rate
                       • Expasionary Fiscal Policy
                         • Increased Gov Spending
                           • Decreased Taxes
                       • Expansionary Monetary Policy
             • • The Graph of the Market for Real Money Balances shows us the relationship between the interest rate
                 • and the quantity of money demanded

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