Flashcards
lecture eleven- the IS-LM model
Cards in this deck (11)
- 1investment savingshows equilibruim points between the interest rate and the level of income in the good market, derived from the keynesian cross diagram, a fall in interest rates leads to increased consumption c and I and so shifts planned expenditure
- 2in keynesian SR what is fixed?price level. the interest rate adjusts to bring equilibrium in the money market
- 3at low interest rates people..hold more cash in hand in anticipation of better investment prospects in the future. interest rate is the OC of holding money
- 4AD curve plots..the relationship between national income and the price level
- 5increased money supply shifts the LM curve..right
- 6if the price increases the LM curve..shifts to the left as the supply of real money balances falls (causes national income to fall so model predicts a negative relationship between price and output.)
- 7ISLMinterest rate and output
IS= the good market(not effected by price) Y=c+i+g+nx so higher interest rate effects investment which is why its sloping down)
LM- money marker effected by price effects d and s. - 8effectsexpansionary fiscal policy: gov increase spending decrease tax IS shifts right and AD increases.
expansionary monetary policy:money supply increases LM right AD increases
therefore for contractionary;
fiscal: IS shifts left AD decreases
monetary: LM shifts left AD decreases
BUT if the change is only in the interest rate we dont shift the curve we move along the curve - 9AD/ASoutput and price
AD; good/money market
AS; labor market - 10how does an increase in the supply of money affect prices and output in the SRus AD/AS as the right relationship.
increase in the supply of money increases the price and increases output.
only effects the demand not supply as dosent effect the expected price and the mark off.
if it was in the long run the output remains the same only P changes as p increases and hence the money supply will soon decrease leading output to drop and remain the same. - 11real money supplymoney supply/ price
if the real money supply increase then money supply and price do too.
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- Flashcards on lecture eleven- the IS-LM model , created by Nadia Thiel on 26/04/2016.
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