Explain the basic characteristics of IS-curve, Macroeconomics

Assignment Help:

Q. Explain the basic characteristics of IS-curve?

IS-LM diagram

IS-curve

The IS curve shows all combinations of R and Y where the goods marketis in equilibrium. The IS-curve slopes downwards.

The goods market is in equilibrium when YD(Y, R) = Y. Note that when R is given, IS-LM simplifies to cross model: 

429_Explain the basic characteristics of IS-curve.png

Figure

If we know R, we can figure out the equilibrium value of Y using the cross model. Additionally, if we know Y we can conclude R from the money market. None of the methods, though, will gives us both Y and R simultaneously. 

Consider the following question: What should happen to Y when we change R if we want the goods market to remain in equilibrium? To answer this question, consider two different interest rates R1 = 5% and R2 = 10%. As YD relies negatively on R, YD(Y, R1) would be larger than YD(Y, R2). With a higher R, we should have a lower Y for the goods market to be in equilibrium.


Related Discussions:- Explain the basic characteristics of IS-curve

Calculate the number average molecular weight, You have two bags of polymer...

You have two bags of polymer. Bag A has 10 kgs of polymer with weight average molecular weight of 336.6 kg and Bag B has 20kg of polymer with weight average molecular weight 392.7k

Perfectly competitive firm, Explain why a perfectly competitive firm does n...

Explain why a perfectly competitive firm does not expand its sales without limit if its horizontal demand curve indicates that it can sell as much as desires at the current market

PPF, what is meant by PPF?

what is meant by PPF?

Velocity and the quantity equation, when the income velocity of circulation...

when the income velocity of circulation (V) rises, why does the economy''s total output must rise?

Franchise revoked is suing mercedes, In 1999 Mercedes-Benz USA adopted a ne...

In 1999 Mercedes-Benz USA adopted a new pricing policy, which it called NFP (negotiation-free process), that sought to eliminate price negotiations between customers and new-car de

How to evaluate total savings, Q. How to evaluate total savings? Total...

Q. How to evaluate total savings? Total savings Total savings S(r) depends positively on the real interest rate Remember that total saving

Wonderland department of commerce, In 2010, Wonderlanders consumed 15 milli...

In 2010, Wonderlanders consumed 15 million liters of rum at an average price of $5 per liter. The Wonderland department of commerce has estimated that the price elasticity of the d

Money, what are the three motives of holding money?

what are the three motives of holding money?

Quote., trying to figure out how this works as I have two classes currently...

trying to figure out how this works as I have two classes currently statistics/economics an

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