MGEB06H3 Chapter Notes - Chapter 10: Expenditure Function, Keynesian Cross, Aggregate Demand

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Chapter 10 aggregate demand i: building the is-lm model. Is-lm model is the leading interpretation of keynes s theory. The goal of the model is to show what determines national income for any given price level. Is-lm model can show what causes income to change in the short run when the price level is fixed. Or it can show what causes aggregate demand curve to shift. For a given price level, national income fluctuates because of shifts in the aggregate demand curve. Is curve stands for investment and saving and it represents what s going on in the market for goods and services. Lm stands for liquidity and money and the curve represents what s happening to the supply and demand for money. Because the interest rate influences both investment and money demand, it is the variable that links the two halves of the is-lm model. 10-1 the goods market and the is curve.

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