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    Lecture Outline: - Macroeconomics Summary - Labor Markets and FE Line

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    Sehar Sajjad
    This lecture outline covers macroeconomic concepts including: 1) Labor markets and goods markets are analyzed using the labor supply and demand (FE) curve and investment-saving (IS) curve. 2) The IS curve shows the relationship between interest rates and output and can shift right with an increase in government spending or left with an increase in taxes. 3) A tax increase reduces consumption and shifts the IS curve left, decreasing equilibrium output, while a government spending increase shifts the IS curve right, increasing output.

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    Lecture Outline: - Macroeconomics Summary - Labor Markets and FE Line

    Uploaded by

    Sehar Sajjad
    19 views17 pages
    This lecture outline covers macroeconomic concepts including: 1) Labor markets and goods markets are analyzed using the labor supply and demand (FE) curve and investment-saving (IS) curve. 2) The IS curve shows the relationship between interest rates and output and can shift right with an increase in government spending or left with an increase in taxes. 3) A tax increase reduces consumption and shifts the IS curve left, decreasing equilibrium output, while a government spending increase shifts the IS curve right, increasing output.

    Original Description:

    Lecture 1

    Original Title

    Lecture+1+Econ+221+Spring+15

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    This lecture outline covers macroeconomic concepts including: 1) Labor markets and goods markets are analyzed using the labor supply and demand (FE) curve and investment-saving (IS) curve. 2) The IS curve shows the relationship between interest rates and output and can shift right with an increase in government spending or left with an increase in taxes. 3) A tax increase reduces consumption and shifts the IS curve left, decreasing equilibrium output, while a government spending increase shifts the IS curve right, increasing output.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    19 views17 pages

    Lecture Outline: - Macroeconomics Summary - Labor Markets and FE Line

    Uploaded by

    Sehar Sajjad
    This lecture outline covers macroeconomic concepts including: 1) Labor markets and goods markets are analyzed using the labor supply and demand (FE) curve and investment-saving (IS) curve. 2) The IS curve shows the relationship between interest rates and output and can shift right with an increase in government spending or left with an increase in taxes. 3) A tax increase reduces consumption and shifts the IS curve left, decreasing equilibrium output, while a government spending increase shifts the IS curve right, increasing output.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 17

    LECTURE OUTLINE

    Macroeconomics Summary
    Labor markets and FE line
    Derivation
    Shifts

    Goods markets and IS curve


    Derivation
    Shifts

    Labor market equilibrium

    Figure 9.1 The FE line

    Deriving the IS curve:


    From Y = C + I + G to S = I

    Figure 9.3 Effect on the IS curve of a temporary


    increase in government purchases

    Shifting the IS curve: G


    At any value of r,
    G E Y
    so the IS
    curve shifts to
    the right.
    The horizontal
    distance of the

    E =Y E =C +I (r )+G
    1
    2

    E =C +I (r1 )
    +G1

    Y1

    r1

    IS shift equals

    1
    Y
    G
    1 MPC

    Y2

    Y1

    IS1

    Y2

    IS2
    Y

    Solving for Y
    Y C I

    Y C I G

    MPC Y G
    Collect terms with Y
    on the left side of the
    equals sign:

    (1 MPC) Y G

    equilibrium condition
    in changes
    because I exogenous
    because C = MPC
    Y
    Solve for Y :

    1
    Y
    G
    1 MPC

    An increase in taxes
    =
    Y

    Initially, the tax


    increase reduces
    consumption, and
    therefore E:

    At Y1, there is now


    an unplanned
    inventory buildup

    C = MPC
    T
    so firms
    reduce output,
    and income falls
    toward a new
    equilibrium

    E =C1 +I
    +G
    E =C2 +I
    +G

    Y
    E2 = Y2

    E1 = Y1

    An increase in taxes
    Figure 5 - 4
    Shifts of the IS
    Curve

    An increase in
    taxes shifts the IS
    curve to the left.

    Solving for Y
    Y C I G
    C

    eqm condition in
    changes
    I and G exogenous

    MPC Y T
    Solving for Y :

    Final result:

    (1 MPC) Y MPC T

    MPC
    Y
    T
    1 MPC

    Shifts of the IS Curve


    Lets summarize:
    Equilibrium in the goods market implies that
    an increase in the interest rate leads to a
    decrease in output.
    Changes in factors that decrease the
    demand for goods, given the interest rate
    shift the IS curve to the left.

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