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Department
Economics for Management Studies
Course
MGEB06H3
Professor
Jack Parkinson
Semester
Summer

Description
Chapter 10 Aggregate Demand I: Building the IS-LM Model Notes N IS-LM model a model of aggregate demand that shows what determines aggregate income for a given price level by analyzing the interaction between the goods market and the money market N IS curve negative relationship between interest rate and the level of income that arises in the market for goods and services N LM curve the positive relationship between the interest rate and the level of income (while holding the price level fixed) that arises in the market for real money balances N IS stands for investment and saving, and the IS curve represents whats going on in the market for goods and services N LM stands for liquidity and money, and the LM curve represents whats happening to the supply and demand for money 10.1 The Goods Market and the IS Curve N Keynesian cross a simple model of income determination, based on the ideas in Keyness General Theory, which shows how changes in spending can have a multiplied effect on aggregate income The Keynesian Cross N in the General Theory Keynes proposed that an economys total income was, in the short run, determined largely by the desire to spend by households, firms, and the government; thus the problem during recessions and depressions was inadequate spending N actual expenditure is amount households, firms, and government spend on goods and services and it equals economys GDP N planned expenditure is the amount households, firms, and the government would like to spend on goods and services N government-purchases multiplier the change in aggregate income resulting from a one-dollar change in government purchases N tax multiplier the change in aggregate income resulting from a one-dollar change in taxes How Fiscal Policy Shifts the IS Curve N IS curve shows combinations of interest rate and income level that are steady with equilibrium in market for goods and services N the IS curve is drawn for a given fiscal policy N changes in fiscal policy that raise the demand for goods and services shift the IS curve to the right N changes in fiscal policy that reduce the demand for goods and services shift the IS curve to the left 10.2 The Money Market and the LM Curve N theory of liquidity preferences a simple model of the interest rate, based on the ideas in Keyness General Theory, which says that t
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