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IS LM, AD AS (closed economy)

IS LM, AD AS (closed economy)

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Published by hishamsauk

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Published by: hishamsauk on Mar 21, 2011
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12/09/2013

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M
ACROECONOMICS
² IS/LM,AD/AS (
CLOSED ECONOMY
)
 
T
HE
IS C
URVE
IS curve: Locus of points of equilibrium in the
goods
market.
Requires that Planned Real expenditure on goods(Yd) is equal to output (Y). Yd=Y 
Yd = C (consumption) + I (investment) + G(Government Expenditure)
N
ext logical step is to find functions for C and I(and assume G is an exogenous constant, for now)
 
T
HE
IS C
URVE
C = Co + Cy (Y ² T); Co = Autonomousexpenditure, Cy = Marginal Propensity toConsume (MPC), T = Tax
T = Ty.Y, Ty = Marginal Propensity to Tax.
C = Co + Y.Cy(1 ² Ty)
I = A ² ar
A = Autonomous level of investment, a =investment sensitivity to (real) interest rates, r =real interest rate.

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