Aggregate demand in the is-lm model, Macroeconomics

Assignment Help:

Q. Aggregate demand in the IS-LM model?

Aggregate demand

Aggregate demand depends on Y and R in the IS-LM model

As investments depend on R and consumption and imports depend on Y, aggregate demand will rely on both Y and R. In cross model, we used notation YD(Y) for aggregate demand. In IS-LM model, we should instead use the notation YD(Y, R). Now We have 

YD(Y, R) = C(Y) + I(R) + G + X - Im(Y)

It doesn't make much of a difference if we allow C and Im to depend on R as well, YD will rely positively on Y and negatively on R in any case.

It must also be clear that we can no longer determine GDP the way we did it in cross model. We can't successfully solve the equation YD(Y, R) = Y since we have only one equation and two unknowns (Y and R). We need one additional equation if we want to solve for both Y and R. This equation would come from the money market.


Related Discussions:- Aggregate demand in the is-lm model

Industrial production and agricultural production, Industrial Production an...

Industrial Production and Agricultural Production  Industrial production and agricultural production are aggregate measures of sectoral outputs. It is a common practice to divi

Design-build-operate engineering company, A design-build-operate engineerin...

A design-build-operate engineering company burrowed $6 million for 3 years so that in can purchase new equipment. The interest is compounded and the total amount owed will be paid

Calculate the income elasticity and good , Due to the recent downturn in e...

Due to the recent downturn in economic activity, Taz, has seen his hours at work reduced. He used to work 30 hours a week at $13 and hour, but now he works 22 hours. Due to this

The model building, THE MODEL BUILDING    A model of individual or a...

THE MODEL BUILDING    A model of individual or aggregate economic phenomena represents a simplification of real world economic complexities. It may be expressed in words, ta

Define the multiplier and rate of inflation, 1 (a) List two concerns with i...

1 (a) List two concerns with inflation. (b) Suppose that we are in a condition of fully flexible prices, but production of nails will not go above 200 chairs/month. What price w

The aggregate demand curve, The aggregate demand curve shows the combinatio...

The aggregate demand curve shows the combinations of the price level and the level of output at which the goods and money markets are simultaneously in equilibrium. Let us now go o

Explain the competitive model, Identify and explain the evidence for and ag...

Identify and explain the evidence for and against the competitive model. Provide specific examples.

Serve on an environmental policy, Suppose you serve on an environmental pol...

Suppose you serve on an environmental policy planning board for the federal government. Your task is to propose a policy initiative aimed at reducing urban air pollution, using the

Index number, definition and charactoristics of index numbers.problems whil...

definition and charactoristics of index numbers.problems while constructing index numbers

Engine performance in general are not adversely affected, Henry Ford's Mode...

Henry Ford's Model T was originally designed and built to be run on ethanol. Today, ethanol (190-proof alcohol) can be produced with domestic stills for about $0.75 per gallon. Whe

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