tailieunhanh - Lecture Macroeconomics: Lecture 16 - Prof. Dr.Qaisar Abbas

Chapter 16: Aggregate demand – I-B. This chapter sets up the IS-LM model, which chapter 11 then uses extensively to analyze the effects of policies and economic shocks. This chapter also introduces students to the Keynesian Cross and Liquidity Preference models, which underlie the IS curve and LM curve, respectively. | Review of the previous lecture Keynesian Cross basic model of income determination takes fiscal policy & investment as exogenous fiscal policy has a multiplied impact on income. IS curve comes from Keynesian Cross when planned investment depends negatively on interest rate shows all combinations of r and Y that equate planned expenditure with actual expenditure on goods & services 0 Lecture 16 Aggregate demand – I-B Instructor: Prof. Dr. Qaisar Abbas 1 This chapter sets up the IS-LM model, which chapter 11 then uses extensively to analyze the effects of policies and economic shocks. This chapter also introduces students to the Keynesian Cross and Liquidity Preference models, which underlie the IS curve and LM curve, respectively. If you would like to spend less time on this chapter, you might consider omitting the Keynesian Cross, instead using the loanable funds model from Chapter 3 to derive the IS curve. Advantage: students are already familiar with the loanable funds model, so . | Review of the previous lecture Keynesian Cross basic model of income determination takes fiscal policy & investment as exogenous fiscal policy has a multiplied impact on income. IS curve comes from Keynesian Cross when planned investment depends negatively on interest rate shows all combinations of r and Y that equate planned expenditure with actual expenditure on goods & services 0 Lecture 16 Aggregate demand – I-B Instructor: Prof. Dr. Qaisar Abbas 1 This chapter sets up the IS-LM model, which chapter 11 then uses extensively to analyze the effects of policies and economic shocks. This chapter also introduces students to the Keynesian Cross and Liquidity Preference models, which underlie the IS curve and LM curve, respectively. If you would like to spend less time on this chapter, you might consider omitting the Keynesian Cross, instead using the loanable funds model from Chapter 3 to derive the IS curve. Advantage: students are already familiar with the loanable funds model, so skipping the KC means one less model to learn. Additionally, the KC model is not used anywhere else in this textbook. Once it’s used to derive IS, it disappears for good. However, there are some good reasons for NOT omitting the KC model: 1) Many principles textbooks (though not Mankiw’s) cover the KC model; students who learned the KC model in their principles class may benefit from seeing it here, as a bridge to new material (the IS curve). 2) The KC model has historical value. One could argue that somebody graduating from college with a degree in economics should be familiar with the KC model. Lecture Contents The LM curve, and its relation to - the Theory of Liquidity Preference How the IS-LM model determines income and the interest rate in the short run when P is fixed Policy analysis with the IS-LM Model 2 The Theory of Liquidity Preference Due to John Maynard Keynes. A simple theory in which the interest rate is determined by money supply and money demand. 3 Money Supply The .