the slope of is curve and its policy implications
TRANSCRIPT
the slope of IS curve and its policy implications
r
I Y
S
IS curvethe smaller the elasticity of investment
the steeper the IS curve
r
I Y
S
IS curvethe greater the elasticity of investment
the flatter the IS curve
r
I Y
S
IS curvethe larger the marginal propensity to save
the steeper the IS curve
r
I Y
S
IS curve
the flatter the IS curve
the smaller the marginal propensity to save
Policy Implications
Policy Implication: a steeper IS curve(expansionary monetary policy)
r
Y
IS
LM
LM’
Y1 Y2
r
Y
IS
LM
LM’
Y1 Y2
Policy Implication: a flatter IS curve(expansionary monetary policy)
r
YIS1
LM
Y1 Y2
Policy Implication: a steeper IS curve(expansionary fiscal policy)
IS2
r
Y
IS1
LM
Y1 Y2
Policy Implication: a steeper IS curve(expansionary fiscal policy)
IS2
the slope of LM curve and its policy implications
r
Ma Y
Mt
LM curve
450
the smaller the interest elasticity of money demand
the steeper the LM curve
r
Ma Y
Mt
LM curve
450
the larger the interest elasticity of money demand
the flatter the LM curve
r
Ma Y
Mt
LM curve
450
the larger the income elasticity of money demand
the steeper the LM curve
r
Ma Y
Mt
LM curve
450
the smaller the income elasticity of money demand
the flatter the LM curve
Policy Implications
Policy Implication: a steeper LM curve(expansionary monetary policy)
r
Y
IS
LM
LM’
Y1 Y2
Policy Implication: a flatter LM curve(expansionary monetary policy)
r
Y
IS
LM
LM’
Y1 Y2
Policy Implication: a steeper LM curve(expansionary fiscal policy)
r
Y
IS
LM
Y1 Y2
IS’
Policy Implication: a steeper LM curve(expansionary fiscal policy)
r
Y
IS’
LM
Y1 Y2
IS
Extreme Cases
A vertical IS curve
r
Y
IS LM
LM’
monetary policy
A vertical IS curve
r
Y
IS
LM
IS’
Y1 Y2
no crowding out effect
fiscal policy
A vertical LM curve
r
Y
LM
Y1 Y2
LM
IS
monetary policy
A vertical LM curve
r
Y
LM
IS’
fiscal policy
IS
A horizontal IS curve
r
Y
LM
monetary policy
IS
LM’
Y1 Y2
A horizontal LM curve
r
Y
LM
fiscal policy
IS
Y1 Y2
IS’
AL 96/7
Y
IS1
LM1
Y*
IS2
IS3
LM2