Analyze the LM-IS model via the aid of diagrammes

Solutions

Expert Solution

The IS curve moves to the right, causing higher interest rates (i) and expansion in the "real" economy (real GDP, or Y)

The IS–LM model, or Hicks–Hansen model, is a two-dimensional macroeconomic tool that shows the relationship between interest rates and assets market (also known as real output in goods and services market plus money market).The intersection of the "investment–saving" (IS) and "liquidity preference–money supply" (LM) curves models "general equilibrium" where supposed simultaneous equilibria occur in both the goods and the asset markets.Yet two equivalent interpretations are possible: first, the IS–LM model explains changes in national income when price level is fixed short-run; second, the IS–LM model shows why an aggregate demand curve can shift.Hence, this tool is sometimes used not only to analyse economic fluctuations but also to suggest potential levels for appropriate stabilisation policies.

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

Analyze the LM-IS model via the aid of diagrammes

Analyze the effects of quantitative easing policies using MS –MD model and IS –LM model.

Analyze the Financial crisis 2009 in the US with the IS-LM model in the short-run and...

Analyze the Financial crisis 2009 in the US with the IS-LM model in the short-run and long-run, if there were no stabilization policies implemented.

Using the IS-LM model, analyze the effect of the following events on the economy. Show the...

Using the IS-LM model, analyze the effect of the following events on the economy. Show the graphs and explain the changes step-by-step (Example: Increase in tax rate => Lower disposable income => Lower Consumption => Lower AD => Lower output/income => Lower money demand => Lower interest rate). Due to the ongoing quarantine, the firms decreased autonomous investment. The government initiated a massive infrastructural improvement program. The Central bank increased its money supply. The technological revolution on the financial market...

In the IS-LM model, analyze the effects of increased optimism of businesses on all the endogenous...

In the IS-LM model, analyze the effects of increased optimism of businesses on all the endogenous variables (Y, r, I, S, C, T, L1, L2).

Use the Keynesian IS-LM Model to analyze the effect of the following on interest rates, employment...

Use the Keynesian IS-LM Model to analyze the effect of the following on interest rates, employment and price level. Differentiate between the effects in the SR and LR : 1.An increase in consumer confidence, as consumers expect their incomes to be higher in the future 2.Financial deregulations allow banks to pay a higher interest rate on checking accounts

Use IS- LM model to analyze the US recession in 2001 : + What US followed...

Use IS- LM model to analyze the US recession in 2001 : + What US followed to remedy the recession + Use IS- LM model to analyze the effects of the remedies

In the IS-LM model, analyze the effects of increased optimism of wealth-holders on all the endogenous...

In the IS-LM model, analyze the effects of increased optimism of wealth-holders on all the endogenous variables (Y, r, I, S, C, T, L1, L2).

In the IS-LM model, analyze the effects of increased optimism among banks on all the endogenous...

In the IS-LM model, analyze the effects of increased optimism among banks on all the endogenous variables (Y, r, I, S, C, T, L1, L2).

Using the IS-LM-FE model for a small open economy, analyze the effects of a contractionary monetary...

Using the IS-LM-FE model for a small open economy, analyze the effects of a contractionary monetary policy on output and the real interest rate in the short run and the long run. In each case, discuss the differences between the classical and the Keynesian models.

Subjects