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The presentation covers - Deriving the IS curve - Deriving the LM curve - Equilibrium - ISLM analysis - Deriving an AD curve - ISLM analysis of fiscal and monetary policy
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Deriving the IS curve
Injections, WithdrawalsO^ I 1 ( J 1 )
rate of^ Assume that an interest r 1 gives investment of I 1 and saving of S 1
Y 1
Rate of interest O
r 1
Injections, Withdrawals
Rate of interest
r 1
rate of^ Assume that an interest r 1 gives investment of I 1 and saving of S 1
Y 1
Injections, Withdrawals
Rate of interest
r 1
Now assume that the interest rate falls to r 2 , giving investment of I 2 and saving of S 2
Y 1
r 2
Injections, Withdrawals
Rate of interest
r 1
Now assume that the interest rate falls to r 2 , giving investment of I 2 and saving of S 2
Y 1
r 2
Injections, Withdrawals
Rate of interest
r 1
Now assume that the interest rate falls to r 2 , giving investment of I 2 and saving of S 2
Y 1
r (^2) IS ( J = W )
Deriving the LM curve
Rate of interest Rate of interest Money National income^ Y^1
Assume that at a level of national income, Y 1 ,
Rate of interest Rate of interest Money National income^ Y^1
Assume that at a level of national income, Y 1 ,
Rate of interest Rate of interest Money National income^ Y^1
r 1 r 1 Y 2
Now assume that at the higher level of national income, Y 2 ,
Rate of interest Rate of interest Money National income^ Y^1
r^ r 12 rr^21 Y 2
Now assume that at the higher level of national income, Y 2 ,
Rate of interest Rate of interest Money National income^ Y^1
r^ r 12 rr^21 Y 2
Now assume that at the higher level of national income, Y 2 ,
Equilibrium