ECON 2410 Lecture 5: Week 5- Goods and Financial Markets.pdf

• School: University of Guelph
• Department: Economics
• Course: ECON 2410
• Professor: Laurent Cellarier

Document Summary

Chapter 5- goods and financial markets: the is-lm. Is relation- an equilibrium condition stating that demand for goods must be equal to the supply of goods, or equivalently that investment must be equal to saving (cid:1851)(cid:3404)(cid:1829)(cid:4666)(cid:1851)(cid:3398)(cid:1846)(cid:4667)(cid:3397)(cid:1835)(cid:4666)(cid:1851),(cid:1861)(cid:4667)(cid:3397)(cid:1833) (cid:1839)(cid:1842)(cid:1755)(cid:1755)(cid:3404)(cid:1851) (cid:1838)(cid:4666)(cid:1861)(cid:4667) Is curve- a downward sloping curve relating output to the interest rate. The curve corresponding to the is relation, the equilibrium condition for the goods market. Lm relation- an equilibrium condition stating that the demand for money must be equal to the supply for money; the equilibrium condition for the financial market. Lm curve- an upward sloping curve relating the interest rate to output. The curve corresponding to the lm relation, the equilibrium condition for financial markets. Fiscal contraction- a policy aimed at reducing the budget deficit through a decrease in government spending or an increase in taxation. Fiscal expansion- an increase in government spending or a decrease in taxation, which leads to an increase in the government deficit.