ALL THE CURVES THE IS-LM MODEL
THE MONEY MARKET THE IS RELATION – INVESTMENT SAVING
MONEY DEMAND: Y =C ( Y −T ) + I ( Y , r + x )+ G
M d =€ YL(i) Which shows us all equilibria for Y=Z. G is an exogeneous variable which therefor
shifts the IS curve (up or down). A change in C or I influences the slope since
Where
these are endogenous
- Y is the output/income
THE LM RELATION – LIQUIDITY MONEY
- L(i) is a function of the interest, determining the demand
i=í
MONEY SUPPLY
The interest rate is set by a central
d i
H
M s=
c +θ(1−c ) authority and is therefore given ¿ í
Where: EXTRA EXPLANATIONS
- Assume that the curves only
- H d denotes the demanded central bank money
shift, do not change the slope!
- c denotes the fraction held by people in currency
- The IS curve shifts to the left or
- θ denotes the desired reserve-deposit ratio
to the right.
- (1−c) is what people save on the bank - This is what shifts IS:
o C increase: shift right
o T increase: Shift left
o Positive expectations: shift right
o G increase: shift right
THE MONEY MARKET THE IS RELATION – INVESTMENT SAVING
MONEY DEMAND: Y =C ( Y −T ) + I ( Y , r + x )+ G
M d =€ YL(i) Which shows us all equilibria for Y=Z. G is an exogeneous variable which therefor
shifts the IS curve (up or down). A change in C or I influences the slope since
Where
these are endogenous
- Y is the output/income
THE LM RELATION – LIQUIDITY MONEY
- L(i) is a function of the interest, determining the demand
i=í
MONEY SUPPLY
The interest rate is set by a central
d i
H
M s=
c +θ(1−c ) authority and is therefore given ¿ í
Where: EXTRA EXPLANATIONS
- Assume that the curves only
- H d denotes the demanded central bank money
shift, do not change the slope!
- c denotes the fraction held by people in currency
- The IS curve shifts to the left or
- θ denotes the desired reserve-deposit ratio
to the right.
- (1−c) is what people save on the bank - This is what shifts IS:
o C increase: shift right
o T increase: Shift left
o Positive expectations: shift right
o G increase: shift right
