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

How growth are improved living standards, How growth are improved living st...

How growth are improved living standards The two main benefits of growth are improved living standards and technological advancement. As an economy grows, the output of

GDP, BENEFITS OF GDP

BENEFITS OF GDP

Energy supply, What happens to the extraction path if the choke price falls...

What happens to the extraction path if the choke price falls

Myth of public goods''''?, a) Summarize the basic tenets of the arguments i...

a) Summarize the basic tenets of the arguments in this case. b) Do you agree with main tenets of the arguments in the case? Why? Justify your answer with detailed explanations. s

Mtric, Rewrite the national-income model (3.23) in the format of (4.1), wit...

Rewrite the national-income model (3.23) in the format of (4.1), with Y as the first vari¬able. Write out the coefficient matrix and the constant vector.

Central bank overnight interest rate, Q. Central bank overnight interest ra...

Q. Central bank overnight interest rate? Overnight interest rate is a significant interest rate for a central bank and it has methods of influencing this rate. In most nations,

Millions of individual microeconomic decisions, Macroeconomics deals with t...

Macroeconomics deals with the economy as a whole. The millions of individual microeconomic decisions of the people, businesses, and government in their totality represent a nation'

Action result in a deadweight loss, The short-run supply of a certain crop ...

The short-run supply of a certain crop is perfectly inelastic, because it has already been harvested and no more of it can be grown until the next growing season. In order to raise

Internal market forces, what are some internal market forces and how is the...

what are some internal market forces and how is the outcome of output, jobs, prices, growth, and international balance

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