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Department of Professor: Rapach Summer 2009 ECON 312 Intermediate Macroeconomics Chapter Outline for “Chapter 11—Aggregate Demand II: Applying the IS-LM Model,” N. Gregory Mankiw, Macroeconomics, Sixth edition ( 11-1 Explaining Fluctuations With the IS-LM Model How Fiscal Policy Shifts the IS Curve and Changes the Short-Run Equilibrium Changes in Government Purchases See Figure 11-1
Changes in Taxes See Figure 11-2
How Monetary Policy Shifts the LM Curve and Changes the Short-Run Equilibrium See Figure 11-3
Monetary transmission mechanism
The Interaction Between Monetary and Fiscal Policy See Figure 11-4
CASE STUDY: Policy Analysis With Macroeconometric Models See Table 11-1
Shocks in the IS-LM Model CAST STUDY: The
What Is the Fed’s Policy Instrument—The Money Supply or the Interest Rate? 11-2 IS-LM as a Theory of Aggregate Demand From the IS-LM Model to the Aggregate Demand Curve See Figures 11-5 and 11-6
A change in income in the IS-LM model resulting
from a change in the price level represents a movement along the aggregate
demand curve. A change in income in the IS-LM model for a fixed price level
represents a shift in the aggregate demand curve. The IS-LM Model in the Short Run and the Long Run See Figure 11-7
IS: Y = C(Y – T) + I(r) + G
LM: M/P = L(r,Y)
Keynesian assumption: P = P1
Classical assumption: Y = YF 11-3 The Great Depression See Table 11-2
The Spending Hypothesis: Shocks to the IS Curve The Money Hypothesis: Shocks to the LM Curve The Money Hypothesis Again: The Effects of Falling Prices The Stabilizing Effects of Deflation Pigou effect
The Destabilizing Effects of Deflation Debt-deflation theory
IS: Y = C(Y – T) + I(i – pie) + G
LM: M/P = L(i,Y)
See Figure 11-8
Could the Depression Happen Again? CASE STUDY: The Japanese Slump of the 1990s 11-4 Conclusion Questions for Review: 1, 2, 3 Problems and Applications: 1, 2, 3, 5, 6, 7 |
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