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Understanding Equilibrium in Goods, Services, and Money Markets: An IS-LM Analysis

This document explores the determination of output and equilibrium in both the goods and services market and the money market, focusing on the demand side of the economy. It introduces the IS-LM model, illustrating the interaction between the IS curve (goods market) and the LM curve (money market) to achieve equilibrium. The core concepts include variables like consumption, investment, government spending, and money supply. Additionally, it discusses fiscal and monetary policies, emphasizing the importance of maintaining a healthy government budget and economic stability.

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Understanding Equilibrium in Goods, Services, and Money Markets: An IS-LM Analysis

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  1. Determination of output • Equilibrium in • GOODS and SERVICES Market and • MONEY Market (Demand side of the economy)

  2. What is in the model? GOODS MARKET • The AEd= Y equality • Other variables: Cd, Id, Gd, NXd, T, YD, ------------------------------ IS Curve MONEY MARKET • MD=MS equality • Other variables: Y, i -------------------------------- LM Curve

  3. IS – LM model • Money Market • Goods market i i IS LM Y Y

  4. IS-LM equilibrium • Equilibrium in both markets IS LM i Y

  5. IS-LM equilibrium • Monetary Policy IS LM i Y

  6. IS-LM equilibrium • Fiscal Policy: IS LM i Y

  7. Mathematical model of the IS-LM • See class notes and homework assignment • REVIEW ON THURSDAY LUNCH TIME

  8. Fiscal Policy • Discretionary fiscal policy • Automatic stabilizers

  9. Government Budget • Maintaining a healtyand sustainable government budget • Primary Budget • Consolidated Budget

  10. Debt to GDP

  11. Country Risk Premium

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