The Money market LM Curve An algebraic example of LM curve -=L(r,Y)=a￥+b a>0b≤O 1m a Y b Pb
The Money Market & LM Curve An algebraic example of LM curve ( , ) M L r Y aY br P = = + a 0 b 0 1 M a r Y b P b = −
Short-Run Equilibrium ◆IS- LM Model LM E=Y=C(Y-T)+I+G M L(r, n) IS P Y o The intersection of IS and LM represents simultaneous equilibrium in the market for goods and services and in the market for real money balances at a give price level
Short-Run Equilibrium IS-LM Model The intersection of IS and LM represents simultaneous equilibrium in the market for goods and services and in the market for real money balances at a give price level E Y C Y T I G = = − + + ( ) ( , ) M L r Y P = IS LM r Y
Exercise ◆P2544, Consider the impact of an increase in thriftiness in the Keynesian Cross. Suppose C=C+c(Y-T),where C is a parameter called autonomous consumption and c is the marginal propensity to consumption a. What happens to equilibrium income when the society becomes more thrifty decline in b. What happens to equilibrium savings? C. Why do you suppose this result is called the paradox of thrift?
Exercise P254 4. Consider the impact of an increase in thriftiness in the Keynesian Cross. Suppose , where is a parameter called autonomous consumption and c is the marginal propensity to consumption. a. What happens to equilibrium income when the society becomes more thrifty (decline in )? b. What happens to equilibrium savings? c. Why do you suppose this result is called the paradox of thrift? C C c Y T ( ) − = + − C − C −