class slides for ec 204 spring 2006
DESCRIPTION
Class Slides for EC 204 Spring 2006. To Accompany Chapter 10. The Goods Market and the IS Curve. Planned Spending = E = C + I + G E = C(Y-T) + I + G Actual Spending = Y Equilibrium : Actual Spending = Planned Spending Y = E. - PowerPoint PPT PresentationTRANSCRIPT
Class Slides for EC 204Spring 2006
To Accompany Chapter 10
The Goods Market and the IS Curve
Planned Spending = E = C + I + G
E = C(Y-T) + I + G
Actual Spending = Y
Equilibrium: Actual Spending = Planned Spending
Y = E
The Interest Rate, Investment and the IS Curve
Suppose Investment Spending depends on the interest rate:
I = I(r)
Equilibrium: Y = C(Y-T) + I(r) + G (IS Curve)
Loanable-Funds Interpretation of IS Curve
Y - C - G = I
S = I
Y - C(Y-T) - G = I(r)
S(Y) = I(r)
The Money Market and the LM Curve
Equilibrium in the Money Market:
Real Money Supply = Real Money Demand
M/P = L(r, Y) (LM Curve)
The Short-Run Equilibrium
Y = C(Y-T) + I(r) + G (IS)
M/P = L(r, Y) (LM)