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Chapter 5: Goods
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall Macroeconomics, 5/e Olivier Blanchard
Y = C(Y T ) + I + G
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall Macroeconomics, 5/e Olivier Blanchard
Determining Output
Markets:
I = I (Y , i )
Markets:
Markets:
CHAPTER 5
Goods
Goods and
and Financial
Financial
Markets:
Markets:
The
The ISLM
ISLM Model
Model
and Financial
and Financial
Chapter 5: Goods
Chapter 5: Goods
(+ , )
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Y = C(Y T ) + I (Y , i) + G
For a given value of the interest rate i, demand is an
increasing function of output, for two reasons:
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall Macroeconomics, 5/e Olivier Blanchard
Determining Output
Determining Output
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Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall Macroeconomics, 5/e Olivier Blanchard
Markets:
Figure 5 - 1
Equilibrium in the
Goods Market
The demand for goods is an
increasing function of output.
Equilibrium requires that the
demand for goods be equal to
output.
and Financial
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Chapter 5: Goods
Chapter 5: Goods
and Financial
Markets:
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Determining Output
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Chapter 5: Goods
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall Macroeconomics, 5/e Olivier Blanchard
and Financial
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall Macroeconomics, 5/e Olivier Blanchard
and Financial
Figure 5 - 3
Shifts of the IS Curve
Markets:
To summarize:
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Chapter 5: Goods
Chapter 5: Goods
and Financial
Markets:
Chapter 5: Goods
and Financial
Markets:
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M = $YL(i )
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall Macroeconomics, 5/e Olivier Blanchard
M
= YL(i )
P
and Financial
Markets:
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Chapter 5: Goods
Chapter 5: Goods
and Financial
Markets:
$Y = YP
Equivalently:
$Y
=Y
P
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Chapter 5: Goods
and Financial
Markets:
T ) + I (Y , i ) + G
M
= YL(i )
P
Figure 5 - 6
The ISLM Model
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and Financial
Markets:
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Chapter 5: Goods
Figure 5 - 5
Shifts of the LM curve
and Financial
Chapter 5: Goods
LM relation:
Markets:
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall Macroeconomics, 5/e Olivier Blanchard
IS relation: Y = C(Y
and Financial
Chapter 5: Goods
and Financial
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Chapter 5: Goods
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall Macroeconomics, 5/e Olivier Blanchard
Markets:
Chapter 5: Goods
and Financial
Markets:
Figure 5 - 4
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and Financial
Markets:
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Chapter 5: Goods
Chapter 5: Goods
and Financial
Markets:
Figure 5 - 7
The ISLM Model
Copyright 2009 Pearson Education, Inc. Publishing as Prentice Hall Macroeconomics, 5/e Olivier Blanchard
Table 5-1
The Effects of a
Monetary Expansion
Movement
Movement
Shift of IS
Shift of LM
in Output
Interest Rate
Increase in taxes
Left
None
Down
Down
in
Decrease in taxes
Right
None
Up
Up
Increase in spending
Right
None
Up
Up
Decrease in spending
Left
None
Down
Down
Increase in money
None
Down
Up
Down
Decrease in money
None
Up
Down
Up
and Financial
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Chapter 5: Goods
and Financial
Markets:
Markets:
Figure 5 - 8
Chapter 5: Goods
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and Financial
Markets:
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Chapter 5: Goods
Chapter 5: Goods
and Financial
Markets:
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Markets:
and Financial
Figure 1
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Chapter 5: Goods
Chapter 5: Goods
and Financial
Markets:
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Figure 3
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Chapter 5: Goods
and Financial
Markets:
and Financial
Chapter 5: Goods
Figure 2
Figure 4
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and Financial
Markets:
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Chapter 5: Goods
Chapter 5: Goods
and Financial
Markets:
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Markets:
and Financial
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Chapter 5: Goods
Chapter 5: Goods
and Financial
Markets:
Figure 5 - 9
The Empirical Effects of
an Increase in the
Federal Funds Rate
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Chapter 5: Goods
and Financial
Markets:
Key Terms
IS curve
LM curve
fiscal contraction, fiscal consolidation
fiscal expansion
monetary expansion
monetary contraction, monetary tightening
monetaryfiscal policy mix, policy mix
confidence band
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