Show the example on IS-curve, Macroeconomics

Assignment Help:

Q. Show the example on IS-curve?

99_Show the example on IS-curve.png

Figure

We can explain this argument with the above figure. 

1. Start by identifying R1 and R2 in lower graph. 

2. Draw aggregate demand for both interest rates - the one corresponding to lower interest rate will be higher than the other.  

3. Identify the resulting GDP in upper diagram for both interest rates - the highest level of GDP corresponds to lower interest rate. 

4. Extend these levels of GDP to lower graph. This will give you two points in lower graph. 

5. Continue with other interest rates if you like. Result will be a curve in the lower graph that we call the IS-curve. 

IS curve will identify all combinations of Y and R where YD(Y, R) = Y, which is, where goods market is in equilibrium. Economy should be on this curve if commodity market is to be in equilibrium. Though an analysis of the goods market alone won't help us identify at which point all markets are in equilibrium. Note that cross model is denoted by a single point on the IS-curve - the point corresponding to exogenously given interest rate. Which is why we can determine Y in cross model only from commodity market.


Related Discussions:- Show the example on IS-curve

Illusrtate the equilibrium point, QXd = 14 - (1/2)PX and QXs = (1/4)PX - 1 ...

QXd = 14 - (1/2)PX and QXs = (1/4)PX - 1 Instructions: Round your answers to the nearest whole number. a. Determine the equilibrium price and quantity. Show the equilibrium g

No plans to purchase hot dogs in january, Currently you purchase 6 packages...

Currently you purchase 6 packages of hot dogs a month. You will graduate from college in December, and you will start a new job in January. You have no plans to purchase hot dogs i

Economics, Ask question #Minimum 100 words accepted I need help with homew...

Ask question #Minimum 100 words accepted I need help with homewok

To make a product workers concentrate on specialized tasks, The system wher...

The system where workers concentrate on specialized tasks to make a product is referred to as: A. Coincedence of wants B. Roundabout production C.Freedom of enterprise

Supply and demand , construct the supply and demand curves for rental housi...

construct the supply and demand curves for rental housing, indicating equilibrium rent and quantity. Show the effects on this market( i.e., on supply, demand, equilibrium rent and

Interest rates and inflation, Q. Interest rates and inflation? Assume y...

Q. Interest rates and inflation? Assume you have 1 million on 1st January 2008. A basket of services and goods similar to the CPI basket costs 100,000. You can then purchase ex

Consumer confidence, Use a diagram of the open economy model (e.g. fig 32.4...

Use a diagram of the open economy model (e.g. fig 32.4 from the text) to illustrate and explain the effect of the following event on the market for loanable funds, the level of net

MARKET, COMPARE AND CONTRAST CLASSICAL MODEL AND KEYNESIAN THEOTY

COMPARE AND CONTRAST CLASSICAL MODEL AND KEYNESIAN THEOTY

Economy is fully utilizing its resources, The _______________ illustrates t...

The _______________ illustrates the notion of opportunity cost. If an economy is fully utilizing its resources, it can produce more of one product only if it produces less of anoth

KEYNESIAN CROSS MODEL, In the keynesian cross model, assume the consuption ...

In the keynesian cross model, assume the consuption function is given by C=200=.75(Y-T) and planned investment=100, government purchases and taxes are each of them 100. a) Draw a g

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd