Show the example on IS-curve, Macroeconomics

Assignment Help:

Q. Show the example on IS-curve?

99_Show the example on IS-curve.png

Figure

We can explain this argument with the above figure. 

1. Start by identifying R1 and R2 in lower graph. 

2. Draw aggregate demand for both interest rates - the one corresponding to lower interest rate will be higher than the other.  

3. Identify the resulting GDP in upper diagram for both interest rates - the highest level of GDP corresponds to lower interest rate. 

4. Extend these levels of GDP to lower graph. This will give you two points in lower graph. 

5. Continue with other interest rates if you like. Result will be a curve in the lower graph that we call the IS-curve. 

IS curve will identify all combinations of Y and R where YD(Y, R) = Y, which is, where goods market is in equilibrium. Economy should be on this curve if commodity market is to be in equilibrium. Though an analysis of the goods market alone won't help us identify at which point all markets are in equilibrium. Note that cross model is denoted by a single point on the IS-curve - the point corresponding to exogenously given interest rate. Which is why we can determine Y in cross model only from commodity market.


Related Discussions:- Show the example on IS-curve

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'

Statutory compliance mandates, To the extent that statutory compliance mand...

To the extent that statutory compliance mandates conditions that formerly were only available to workers who had union negotiating power to win such conditions at the bargaining ta

Elucidate raising the price profitable., George has been selling 5,000 T-sh...

George has been selling 5,000 T-shirts per month for $8.50. When he increased the price t0 $9.50 he sold only 4,000 T-shirts. What is the demand elasticity? If his marginal cost is

#title., it has been argued that economic development of developing countri...

it has been argued that economic development of developing countries has been held back by a persistent fall in the terms of trade of developing countries over the long run

Trends of trade shares, Trends of Trade Shares: India's share in total...

Trends of Trade Shares: India's share in total world exports in 1950 was 1.85 percent and the share in total world imports was 1.7 1 percent. The share of both exports and imp

What is the monopole and dipole moment, Charge is distributed with constan...

Charge is distributed with constant volume density D throughout the rectangular box with length a, width b and height c.  a) what is the monopole moment of this system. b) What i

What is is-lm model with inflation, Q. What is IS-LM model with inflation? ...

Q. What is IS-LM model with inflation? The IS-LM model with inflation  The basic assumption We developed IS-LM model with constant wages and prices. We can now exten

Determine the economic functions of money, Determine the Economic functions...

Determine the Economic functions of money There are three functions of economics of money - A medium of exchange. - A unit of account - Store of value.

Happens with the budget constraint, Suppose that Ana is buying only 2 goods...

Suppose that Ana is buying only 2 goods: good 1 and 2. If the price of good 1 doubles and the price of good 2 drops by one third, then what happens with the budget constraint? (Ass

GDP, according to this example,how much value do each book contribute to th...

according to this example,how much value do each book contribute to the GDP? a) a forester chop down 100 trees and sell them @$100 to the paper and pulp factotry

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