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    • Showing posts with label IS/LM. Show all posts
    Showing posts with label IS/LM. Show all posts

    8/14/18

    What causes shifts in the IS or LM curves?

    06:35
    What causes shifts in the IS or LM curves?
    This post was updated in August 2018 to include new information and examples.

     This post goes over the economics and intuition of the IS/LM model and the possible causes for shifts in the two lines. It is possible for the IS curve (Investment and Savings) and the LM curve (Liquidity preference and Money supply) to either increase or decrease based on their determinants. Because of this, it is important to remember the two formulas for IS and LM, and that any change in the variables in the equations could cause a change in the graph:

    The IS equation is:

    Y = C(Y-T(Y))+I(r)+G+NX(Y)
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    4/4/12

    Horizontal and vertical IS and LM curves, an intuitive explanation of the implications

    08:44
    Horizontal and vertical IS and LM curves, an intuitive explanation of the implications
    This post goes over the economic intuition of horizontal and vertical IS and LM curves in the IS/LM model.  It develops the associated graphs, and talk about the fiscal policy and monetary policy implications of such slopes for the IS and LM curves.

    First let's review what to look for in the relevant equations:

    Fiscal Policy can result in: higher/lower taxes, or higher/lower government spending

    So we need to look for the influence of T and G in the following models to see what kind of impacts fiscal policy will have.
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    Mathematically solving for equilibrium Y and I after a shift in the IS/LM model

    07:33
    Mathematically solving for equilibrium Y and I after a shift in the IS/LM model
    This post goes over some mathematical manipulations of the IS/LM model.  It also briefly discusses some of the economic intuition behind the equilibrium and possible shifts:

    Suppose the economy can be summarized by the following set of equations:
    C = 20 + 0.9Yd – 10(i - 0.1); I = 20 – 10(i - 0.1); G = 20; T = 10 + 0.2Y
    Yd = Y - T
    Md/P = 0.6Y – 200i
    Ms =10,000

    We are going to solve the IS and LM equations in terms of Y (and i) and then solve for the equilibrium price, consumption and investment level as well.  After this we will change an exogenous variable simulating expansionary fiscal policy and go through the implications.
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    4/2/12

    What is the IS LM model? A brief introduction with equations and graphs

    09:53
    What is the IS LM model? A brief introduction with equations and graphs

    The IS LM model is a model used in macroeconomics to help explain the possible relationships between the interest rate and real GDP.  While not very accurate for real world analysis, it gives an interesting look at possible outcomes of various policy tools for a classroom setting.

    The IS (Investment and savings equilibrium) equation:

    Y = C(Y-T(Y))+I(r)+G+NX(Y)
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    Finding equilibrium i and Y in the IS LM model

    02:32
    Finding equilibrium i and Y in the IS LM model

    This post goes over some common economics problems associated with the IS-LM model.  Remember that the IS-LM model shows the relationship between real income (Y) and the real interest rate (i) using the IS (Investment and Saving equilibrium) curve along with the LM (Liquidity Preference and Money supply equilibrium) curve.

    Four common policies the government can enact are:

    1.  Expansionary fiscal policy (which will shift the IS curve right)
    2.  Contractionary fiscal policy (which will shift the IS curve left)
    3.  Expansionary monetary policy (which will shift the LM curve right)
    4.  Contractionary monetary policy (which will shift the LM curve left)
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    7/27/11

    What happens in a Mundell-Fleming IS/LM Model, foreign income down with fixed exchange rates

    14:24
    What happens in a Mundell-Fleming IS/LM Model, foreign income down with fixed exchange rates
    This post will be part of an ongoing, what happens in the Mundell Fleming Model series, in particular this post will answer: What happens in a Mundell-Fleming IS/LM Model when there is a decrease in foreign income given fixed exchange rates.  In the future I will go over the construction of the Mundell Fleming IS/LM model (which is just an open economy version of the IS/LM model) but for now I will go through the somewhat complicated problem we see when something happens in a foreign country, yet our home country keeps exchange rates constant.

    First, we recognize the IS and LM lines, and the e on the Y axis represents exchange rates, which are endogenous in the model.  The horizontal line going through the model labeled FE shows the fixed exchange rates as dictated by the domestic economy.
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