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    The IS-LM Model

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    Katherine Asis Natino
    The document discusses the IS-LM model, which shows the relationship between interest rates, income, goods markets, and money markets in an economy. It explains that: 1) The goods market is in equilibrium when the desired investment and savings are equal, meaning aggregate supply equals aggregate demand. 2) The aggregate demand curve depends on the interest rate and income level. Consumption depends positively on income and negatively on interest rates. 3) The IS curve shows the relationship between interest rates and income in the goods market. Shifts in aggregate demand cause the IS curve to shift. 4) The LM curve shows the relationship between interest rates and income in the money market. Expansionary monetary policy

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    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd

    The IS-LM Model

    Uploaded by

    Katherine Asis Natino
    44 views13 pages
    The document discusses the IS-LM model, which shows the relationship between interest rates, income, goods markets, and money markets in an economy. It explains that: 1) The goods market is in equilibrium when the desired investment and savings are equal, meaning aggregate supply equals aggregate demand. 2) The aggregate demand curve depends on the interest rate and income level. Consumption depends positively on income and negatively on interest rates. 3) The IS curve shows the relationship between interest rates and income in the goods market. Shifts in aggregate demand cause the IS curve to shift. 4) The LM curve shows the relationship between interest rates and income in the money market. Expansionary monetary policy

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    IS-LM-Model

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    The document discusses the IS-LM model, which shows the relationship between interest rates, income, goods markets, and money markets in an economy. It explains that: 1) The goods market is in equilibrium when the desired investment and savings are equal, meaning aggregate supply equals aggregate demand. 2) The aggregate demand curve depends on the interest rate and income level. Consumption depends positively on income and negatively on interest rates. 3) The IS curve shows the relationship between interest rates and income in the goods market. Shifts in aggregate demand cause the IS curve to shift. 4) The LM curve shows the relationship between interest rates and income in the money market. Expansionary monetary policy

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    44 views13 pages

    The IS-LM Model

    Uploaded by

    Katherine Asis Natino
    The document discusses the IS-LM model, which shows the relationship between interest rates, income, goods markets, and money markets in an economy. It explains that: 1) The goods market is in equilibrium when the desired investment and savings are equal, meaning aggregate supply equals aggregate demand. 2) The aggregate demand curve depends on the interest rate and income level. Consumption depends positively on income and negatively on interest rates. 3) The IS curve shows the relationship between interest rates and income in the goods market. Shifts in aggregate demand cause the IS curve to shift. 4) The LM curve shows the relationship between interest rates and income in the money market. Expansionary monetary policy

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 13

    The IS-LM

    Model
     
    By: Mark John D. Labrador
    Jayson A. Hona
    Mary Grace A. Llegaria
    Rialyn R. Almadrones
    Ma. Anna G. Barrameda
    Introduction
    In an economy, the production of goods depends on a
    number of factors. But the average supply of goods
    in the economy is considered as the aggregate supply.
    Such an average supply keeps prices at a constant
    level. The aggregate supply of goods determines the
    equilibrium price. The average price level decides
    the aggregate demand. If prices change then the
    aggregate demand is affected. The aggregate demand is
    related to the average price and supply. If the aggregate
    demand rises, it reflects on the aggregate supply.
    The Goods Market
    and the Money
    Market
    The Goods Market
    Equilibrium
    • The goods market is in equilibrium when the desired
    investment and the desired national savings are equal or
    equivalent, when the aggregate quantity of goods
    supplied equals the aggregate quantity of goods
    demanded (Bernanke, 2003)

    • The aggregate demand curve (ADC) is related to the


    interest rate and to the income level.
    • Consumption is related to income and the
    interest rate. As the level of income rises, the
    consumption
    expenditures increase. There is a positive
    relationship between consumption and
    income. Income is
    inversely related to the interest rate. As the
    interest rate starts rising, the consumption
    expenditures start
    declining.
    • The aggregate demand curve (ADC) is related to the
    interest rate and to the income level.
    DERIVATION OF THE IS CURVE

    Interest rate

    Investments

    Income
    SHIFTS OF THE IS CURVE

    Interest rate =
    constant

    Income

    • A change in the aggregate demand curve leads to a shift of the IS curve


    from left to right.
    DERIVATION OF THE LM CURVE

    Interest rate

    Demand for
    money

    Income
    SHIFTS OF THE LM CURVE

    Interest rate =
    constant

    • An expansionary
    monetary policy
    leads to an increase
    in the income.
    EFFECTS OF FISCAL POLICIES IN THE IS-LM MODEL
    EFFECTS OF MONETARY POLICIES IN THE IS-LM MODEL

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