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

Social entrepreneur is relying on contributions, If a social entrepreneur i...

If a social entrepreneur is relying on contributions, are there not risks in being accountable and using that money wisely?

Hypothetical economy, #C=100+0.8yd G=100 T=0.25y X=150 M=0.25yd 1) What is ...

#C=100+0.8yd G=100 T=0.25y X=150 M=0.25yd 1) What is the level of equilibrium national income? 2) Estimate the budget surplus or deficit at the equilibrium national income. 3) Deri

Advantages of leaving resource allocation, What are the advantages of leavi...

What are the advantages of leaving resource allocation to price allocation? Ans) The 5 benefits are Neutral, Flexible, Freedom of choice, No administrative cost and lastly Dimin

Result of an export subsidy, Which of the following is a result of an expor...

Which of the following is a result of an export subsidy? a. The imposing nation always benefits from an export subsidy. b. The imposing nation suffers a terms of trade loss from an

Question, The greater the number of different goods available in an economy...

The greater the number of different goods available in an economy, Question 1 options: a) the less likely it is that a double coincidence of wants will exist, and the less likel

Financing of the external payments deficit, Financing of the external payme...

Financing of the external payments deficit: The trend  in India's widening CAD during the second half of  the eighties, both in absolute terms and also as a proportion of the

The multiplier analysis , THE MULTIPLIER ANALYSIS  Multiplier analysis ...

THE MULTIPLIER ANALYSIS  Multiplier analysis explains what happens to circular flow of economic life when the behavior of one of the sectors or the components of aggregate dema

Monetary Policy.., Suppose the banking system has reserve of $750000, deman...

Suppose the banking system has reserve of $750000, demand deposits of $2500000 and a reserve requirement of 20%. a. if the fed now purchases $125,000 worth of govt bonds from the

Aggregate demand policies, Aggregate Demand Policies Both fiscal and m...

Aggregate Demand Policies Both fiscal and monetary policy changes shift the AD curve. Let us see how, starting with a fiscal expansion. See figure 6.2. In the upper panel, the

Discuss about real verses nominal gross domestic product, Discuss about rea...

Discuss about real verses nominal gross domestic product. Real verses Nominal Gross Domestic Product: Real Gross Domestic Product: the value of the concluding goods and se

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