Figure 1

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25
26

A
IS/LM Model
Parameters
a
b
e
d
g
m
n
k
h
Policy variables
G
Tf
t
M
Price level
P
Solution
T
C
I
G
X
Y (IS)
R (LM)

B

220
0.9
1000
2000
525
0.1
500
0.16
1000
1200
0
0.3
900
1.0
1800.2
4000.4
900.2
1200.0
-100.0
6000.6
5.0%

Page 1

Notes
A2:

Parameter values are chosen exogenously

A3:

Intercept of consumption function

A4:

Marginal propensity to consume

A5:

Intercept of investment function

A6:

Sensitivity of investment to interest rates

A7:

Intercept of net export function

A8:

Marginal propensity to import

A9:

Sensitivity of net exports to interest rates

A10:

Income sensitivity of money demand

A11:

Interest sensitivity of money demand

A12:

Chosen exogenously

A13:

Government purchases

A14:

Lump-sum taxes

A15:

Income tax rate

A16:

Nominal money supply

A17:

Chosen exogenously and fixed

A18:

Price level

A19:

The solution requires solving several equations simultaneously. Turn on Tools/Options/Calculation/Iteration

A20:

=Tf + tY

A21:

=a + b (Y-T)

A22:

=e-dR

A23:

=G

A24:

=g - mY - nR

A25:

IS curve: = C + I + G + X

A26:

LM curve: = (k/h)Y - (1/h)(M/P)

Page 2

12.0%
11.5%
11.0%
10.5%
10.0%
9.5%
9.0%
8.5%
8.0%

Interest Rate

7.5%
7.0%
6.5%
6.0%
5.5%
5.0%
4.5%
4.0%
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
5700.0

5750.0

5800.0

5850.0

5900.0

5950.0

6000.0
Real GDP

6050.0

6100.0

6150.0

6200.0

6250.0

6300.0

0.0

6300.0

Spreadsheet for Figure 2

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27

A
IS/LM Model
Parameters
a
b
e
d
g
m
n
k
h
Policy Variables
G
Tf
t
M
Price level
P
Solution
T
C
I
G
X
Y (IS)
Given R
LM (R)

B

C

D

E

F

G

H

I

J

K

L

M

N

O

P

Q

220
0.9
1000
2000
525
0.1
500
0.16
1000

220
0.9
1000
2000
525
0.1
500
0.16
1000

220
0.9
1000
2000
525
0.1
500
0.16
1000

220
0.9
1000
2000
525
0.1
500
0.16
1000

220
0.9
1000
2000
525
0.1
500
0.16
1000

220
0.9
1000
2000
525
0.1
500
0.16
1000

220
0.9
1000
2000
525
0.1
500
0.16
1000

220
0.9
1000
2000
525
0.1
500
0.16
1000

220
0.9
1000
2000
525
0.1
500
0.16
1000

220
0.9
1000
2000
525
0.1
500
0.16
1000

220
0.9
1000
2000
525
0.1
500
0.16
1000

220
0.9
1000
2000
525
0.1
500
0.16
1000

220
0.9
1000
2000
525
0.1
500
0.16
1000

220
0.9
1000
2000
525
0.1
500
0.16
1000

220
0.9
1000
2000
525
0.1
500
0.16
1000

220
0.9
1000
2000
525
0.1
500
0.16
1000

1200
0
0.3
900

1200
0
0.3
900

1200
0
0.3
900

1200
0
0.3
900

1200
0
0.3
900

1200
0
0.3
900

1200
0
0.3
900

1200
0
0.3
900

1200
0
0.3
900

1200
0
0.3
900

1200
0
0.3
900

1200
0
0.3
900

1200
0
0.3
900

1200
0
0.3
900

1200
0
0.3
900

1200
0
0.3
900

1.0

1

1

1

1

1

1

1

1

1

1

1

1

1

1

1

1879.8
4167.6
1000.0
1200.0
-101.6
6266.0
0.0%
9.2%

1863.8
4134.0
980.0
1200.0
-101.3
6212.8
1.0%
8.3%

1847.9
4100.5
960.0
1200.0
-101.0
6159.6
2.0%
7.5%

1831.9
4067.0
940.0
1200.0
-100.6
6106.4
3.0%
6.7%

1816.0
4033.5
920.0
1200.0
-100.3
6053.2
4.0%
5.8%

1800.0
4000.0
900.0
1200.0
-100.0
6000.0
5.0%
5.0%

1784.0
3966.5
880.0
1200.0
-99.7
5946.8
6.0%
4.1%

1768.1
3933.0
860.0
1200.0
-99.4
5893.6
7.0%
3.3%

1752.1
3899.5
840.0
1200.0
-99.0
5840.4
8.0%
2.5%

1736.2
3866.0
820.0
1200.0
-98.7
5787.2
9.0%
1.6%

1720.2
3832.4
800.0
1200.0
-98.4
5734.0
10.0%
0.8%

1704.3
3798.9
780.0
1200.0
-98.1
5680.9
11.0%
-0.1%

1688.3
3765.4
760.0
1200.0
-97.8
5627.7
12.0%
-0.9%

1672.3
3731.9
740.0
1200.0
-97.4
5574.5
13.0%
-1.8%

1656.4
3698.4
720.0
1200.0
-97.1
5521.3
14.0%
-2.6%

1640.4
3664.9
700.0
1200.0
-96.8
5468.1
15.0%
-3.4%

Page 5

Notes
B25:

Plotting the gray shaded cells with an XY scatter plot (row 25 being the X values) yields the IS-LM graph.

A26:

This row was inserted, and a range of interest rates typed in. The equations for I and X should refer to this row instead of the original LM row, which has been
shifted one row down.

A27:

The LM equation is unchanged; it still refers to the Y (IS) row 25 for its Y values

Page 6

Figure 3

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A
AD Curve
Parameters
a
b
e
d
g
m
n
k
h
Policy variables
G
Tf
t
M
Solution
T
C
I
G
X
Y (IS)
R (LM)
P

B

C

D

E

F

G

H

I

J

K

L

M

N

O

P

Q

R

220
0.9
1000
2000
525
0.1
500
0.16
1000

220
0.9
1000
2000
525
0.1
500
0.16
1000

220
0.9
1000
2000
525
0.1
500
0.16
1000

220
0.9
1000
2000
525
0.1
500
0.16
1000

220
0.9
1000
2000
525
0.1
500
0.16
1000

220
0.9
1000
2000
525
0.1
500
0.16
1000

220
0.9
1000
2000
525
0.1
500
0.16
1000

220
0.9
1000
2000
525
0.1
500
0.16
1000

220
0.9
1000
2000
525
0.1
500
0.16
1000

220
0.9
1000
2000
525
0.1
500
0.16
1000

220
0.9
1000
2000
525
0.1
500
0.16
1000

220
0.9
1000
2000
525
0.1
500
0.16
1000

220
0.9
1000
2000
525
0.1
500
0.16
1000

220
0.9
1000
2000
525
0.1
500
0.16
1000

220
0.9
1000
2000
525
0.1
500
0.16
1000

220
0.9
1000
2000
525
0.1
500
0.16
1000

220
0.9
1000
2000
525
0.1
500
0.16
1000

1200
0
0.3
900

1200
0
0.3
900

1200
0
0.3
900

1200
0
0.3
900

1200
0
0.3
900

1200
0
0.3
900

1200
0
0.3
900

1200
0
0.3
900

1200
0
0.3
900

1200
0
0.3
900

1200
0
0.3
900

1200
0
0.3
900

1200
0
0.3
900

1200
0
0.3
900

1200
0
0.3
900

1200
0
0.3
900

1200
0
0.3
900

1692.6
3774.5
765.4
1200.0
-97.9
5642.1
11.7%
1.16

1698.5
3786.8
772.8
1200.0
-98.0
5661.6
11.4%
1.15

1704.4
3799.3
780.2
1200.0
-98.1
5681.4
11.0%
1.14

1710.5
3812.0
787.8
1200.0
-98.2
5701.6
10.6%
1.13

1716.6
3824.9
795.5
1200.0
-98.3
5722.1
10.2%
1.12

1722.9
3838.1
803.4
1200.0
-98.5
5743.0
9.8%
1.11

1729.3
3851.5
811.4
1200.0
-98.6
5764.3
9.4%
1.10

1735.8
3865.2
819.5
1200.0
-98.7
5786.0
9.0%
1.09

1742.4
3879.1
827.8
1200.0
-98.8
5808.1
8.6%
1.08

1749.2
3893.3
836.3
1200.0
-99.0
5830.6
8.2%
1.07

1756.0
3907.7
844.9
1200.0
-99.1
5853.5
7.8%
1.06

1763.0
3922.4
853.7
1200.0
-99.3
5876.8
7.3%
1.05

1770.2
3937.4
862.6
1200.0
-99.4
5900.6
6.9%
1.04

1777.5
3952.7
871.8
1200.0
-99.5
5924.9
6.4%
1.03

1784.9
3968.3
881.1
1200.0
-99.7
5949.6
5.9%
1.02

1792.5
3984.2
890.5
1200.0
-99.8
5974.8
5.5%
1.01

1800.2
4000.4
900.2
1200.0
-100.0
6000.6
5.0%
1.00

Page 7

Notes
A1:

The AD curve plots the equilibrium GDP in the IS-LM model against different price levels. Thus, the IS-LM model was copied to several columns. The price level row was moved to the
bottom, and different values for the price level are given for each column.

B23:

Charting an XY scatter plot of the shaded cells yields the AD curve plot

A25:

A range of values for the price level are entered into columns B - R

Page 8

AD curve plot
1.16
1.15
1.14
1.13
1.12
1.11
1.10
Price Level

1.09
1.08
1.07
1.06
1.05
1.04
1.03
1.02
1.01
1.00
0.99
5625.0 5650.0 5675.0 5700.0 5725.0 5750.0 5775.0 5800.0 5825.0 5850.0 5875.0 5900.0 5925.0 5950.0 5975.0 6000.0 6025.0
Real GDP

000.0 6025.0

Figure 4

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26
27
28
29
30
31
32
33
34

A
AS-AD Model
Parameters
a
b
e
d
g
m
n
k
h
s
f
Policy variables
G
Tf
t
mgth
M
Solution
Yp
infl
T
C
I
G
X
Y
R
P
Time
Other variables
Unempl
GDP gap

B

C

D

E

F

G

H

I

J

K

L

M

N

O

P

Q

R

S

T

U

V

W

X

Y

Z

AA

220
0.9
1000
2000
525
0.1
500
0.16
1000
0.5
1.2

220
0.9
1000
2000
525
0.1
500
0.16
1000
0.5
1.2

220
0.9
1000
2000
525
0.1
500
0.16
1000
0.5
1.2

220
0.9
1000
2000
525
0.1
500
0.16
1000
0.5
1.2

220
0.9
1000
2000
525
0.1
500
0.16
1000
0.5
1.2

220
0.9
1000
2000
525
0.1
500
0.16
1000
0.5
1.2

220
0.9
1000
2000
525
0.1
500
0.16
1000
0.5
1.2

220
0.9
1000
2000
525
0.1
500
0.16
1000
0.5
1.2

220
0.9
1000
2000
525
0.1
500
0.16
1000
0.5
1.2

220
0.9
1000
2000
525
0.1
500
0.16
1000
0.5
1.2

220
0.9
1000
2000
525
0.1
500
0.16
1000
0.5
1.2

220
0.9
1000
2000
525
0.1
500
0.16
1000
0.5
1.2

220
0.9
1000
2000
525
0.1
500
0.16
1000
0.5
1.2

220
0.9
1000
2000
525
0.1
500
0.16
1000
0.5
1.2

220
0.9
1000
2000
525
0.1
500
0.16
1000
0.5
1.2

220
0.9
1000
2000
525
0.1
500
0.16
1000
0.5
1.2

220
0.9
1000
2000
525
0.1
500
0.16
1000
0.5
1.2

220
0.9
1000
2000
525
0.1
500
0.16
1000
0.5
1.2

220
0.9
1000
2000
525
0.1
500
0.16
1000
0.5
1.2

220
0.9
1000
2000
525
0.1
500
0.16
1000
0.5
1.2

220
0.9
1000
2000
525
0.1
500
0.16
1000
0.5
1.2

220
0.9
1000
2000
525
0.1
500
0.16
1000
0.5
1.2

220
0.9
1000
2000
525
0.1
500
0.16
1000
0.5
1.2

220
0.9
1000
2000
525
0.1
500
0.16
1000
0.5
1.2

220
0.9
1000
2000
525
0.1
500
0.16
1000
0.5
1.2

220
0.9
1000
2000
525
0.1
500
0.16
1000
0.5
1.2

1200
0
0.3
0.0%
900

1400
0
0.3
0.0%
900

1200
0
0.3
0.0%
900

1200
0
0.3
0.0%
900

1200
0
0.3
0.0%
900

1200
0
0.3
0.0%
900

1200
0
0.3
0.0%
900

1200
0
0.3
0.0%
900

1200
0
0.3
0.0%
900

1200
0
0.3
0.0%
900

1200
0
0.3
0.0%
900

1200
0
0.3
0.0%
900

1200
0
0.3
0.0%
900

1200
0
0.3
0.0%
900

1200
0
0.3
0.0%
900

1200
0
0.3
0.0%
900

1200
0
0.3
0.0%
900

1200
0
0.3
0.0%
900

1200
0
0.3
0.0%
900

1200
0
0.3
0.0%
900

1200
0
0.3
0.0%
900

1200
0
0.3
0.0%
900

1200
0
0.3
0.0%
900

1200
0
0.3
0.0%
900

1200
0
0.3
0.0%
900

1200
0
0.3
0.0%
900

6000.6
0.0%
1800.2
4000.4
900.2
1200.0
-100.0
6000.6
5.0%
1.00
0

6000.6
0.0%
1869.5
4145.9
827.1
1400.0
-141.4
6231.6
8.6%
1.00
1

6000.6
4.6%
1765.7
3928.1
857.1
1200.0
-99.3
5885.8
7.1%
1.05
2

6000.6
0.0%
1765.6
3927.8
856.9
1200.0
-99.3
5885.4
7.2%
1.05
3

6000.6
-2.3%
1783.1
3964.6
878.9
1200.0
-99.7
5943.8
6.1%
1.02
4

6000.6
-2.3%
1801.0
4002.0
901.2
1200.0
-100.0
6003.2
4.9%
1.00
5

6000.6
-1.1%
1809.6
4020.1
912.0
1200.0
-100.2
6031.8
4.4%
0.99
6

6000.6
0.1%
1808.9
4018.7
911.2
1200.0
-100.2
6029.7
4.4%
0.99
7

6000.6
0.6%
1804.0
4008.5
905.1
1200.0
-100.1
6013.5
4.7%
1.00
8

6000.6
0.6%
1799.6
3999.2
899.5
1200.0
-100.0
5998.7
5.0%
1.00
9

6000.6
0.2%
1797.7
3995.1
897.1
1200.0
-100.0
5992.3
5.1%
1.00
10

6000.6
0.0%
1798.0
3995.8
897.5
1200.0
-100.0
5993.4
5.1%
1.00
11

6000.6
-0.2%
1799.3
3998.5
899.1
1200.0
-100.0
5997.7
5.0%
1.00
12

6000.6
-0.1%
1800.4
4000.8
900.5
1200.0
-100.0
6001.3
5.0%
1.00
13

6000.6
-0.1%
1800.8
4001.7
901.0
1200.0
-100.0
6002.8
4.9%
1.00
14

6000.6
0.0%
1800.7
4001.5
900.9
1200.0
-100.0
6002.3
5.0%
1.00
15

6000.6
0.0%
1800.4
4000.8
900.5
1200.0
-100.0
6001.2
5.0%
1.00
16

6000.6
0.0%
1800.1
4000.2
900.1
1200.0
-100.0
6000.3
5.0%
1.00
17

6000.6
0.0%
1800.0
4000.0
900.0
1200.0
-100.0
6000.0
5.0%
1.00
18

6000.6
0.0%
1800.0
4000.1
900.1
1200.0
-100.0
6000.1
5.0%
1.00
19

6000.6
0.0%
1800.1
4000.3
900.2
1200.0
-100.0
6000.4
5.0%
1.00
20

6000.6
0.0%
1800.2
4000.4
900.2
1200.0
-100.0
6000.7
5.0%
1.00
21

6000.6
0.0%
1800.2
4000.5
900.3
1200.0
-100.0
6000.7
5.0%
1.00
22

6000.6
0.0%
1800.2
4000.4
900.3
1200.0
-100.0
6000.7
5.0%
1.00
23

6000.6
0.0%
1800.2
4000.4
900.2
1200.0
-100.0
6000.6
5.0%
1.00
24

6000.6
0.0%
1800.2
4000.3
900.2
1200.0
-100.0
6000.6
5.0%
1.00
25

4.50%
0.00%

-7.05%
3.85%

10.24%
-1.91%

10.26%
-1.92%

7.34%
-0.95%

4.37%
0.04%

2.94%
0.52%

3.04%
0.49%

3.86%
0.21%

4.60%
-0.03%

4.91%
-0.14%

4.86%
-0.12%

4.65%
-0.05%

4.46%
0.01%

4.39%
0.04%

4.41%
0.03%

4.47%
0.01%

4.51%
0.00%

4.53%
-0.01%

4.52%
-0.01%

4.51%
0.00%

4.50%
0.00%

4.49%
0.00%

4.49%
0.00%

4.50%
0.00%

4.50%
0.00%

Page 11

Notes
A2:

Parameter values are chosen exogenously

A3:

Intercept of consumption function

A4:

Marginal propensity to consume

A5:

Intercept of investment function

A6:

Sensitivity of investment to interest rates

A7:

Intercept of net export function

A8:

Marginal propensity to import

A9:

Sensitivity of net exports to interest rates

A10:

Income sensitivity of money demand

A11:

Interest sensitivity of money demand

A12:

Persistence of inflation parameter; the fraction of the previous period's inflation that is expected the current period

A13:

Sensitivity of inflation to market conditions (i. e. distance from potential GDP)

A14:

Chosen exogenously

A15:

Government purchases

C15:

Government purchases increases by 200 this period...

D15:

…but returns to 1200 this period

A16:

Lump-sum taxes

A17:

Income tax rate

A18:

The growth rate of the money supply

A19:

Nominal money supply:
- predetermined in initial period
- determined by mgth in subsequent periods

A20:

The solution requires solving several equations simultaneously. Turn on Tools/Options/Calculation/Iteration

A21:

Potential GDP, initially set equal to the value of actual GDP so the economy starts with no GDP gap.

A22:

Inflation rate:
- predetermined in initial period
- determined by price adjustment process in succeeding periods

B22:

Predetermined

C22:

Determined by price adjustment:
infl = s*infl(t-1) + f*[Y(t-1) - Yp(t-1)]/Yp(t-1)

A23:

=Tf + tY

A24:

=a + b (Y-T)

A25:

=e-dR

A26:

=G

A27:

=g - mY - nR

A28:

IS curve: = C + I + G + X

A29:

LM curve: = (k/h)Y - (1/h)(M/P)

A30:

Price level:
- predetermined in initial period
- determined by price adjustment process in succeeding periods

B30:

Exogenously determined

C30:

Determined by price adjustment process: = P(t-1)*(1+infl)

A33:

Unemployment rate (from Okun's Law)
=.045+ 3*(Yp-Y)/Yp

Page 12

Inflation rate

4.8%
4.5%
4.3%
4.0%
3.8%
3.5%
3.3%
3.0%
2.8%
2.5%
2.3%
2.0%
1.8%
1.5%
1.3%
1.0%
0.7%
0.5%
0.2%
0.0%
-0.3%
-0.5%
-0.8%
-1.0%
-1.3%
-1.5%
-1.8%
-2.0%
-2.3%
-2.5%
Co Co Co
lu lu lu
mn mn mn

Co Co Co Co
lu lu lu lu
mn mn mn mn

Co Co Co
lu lu lu
mn mn mn

Co Co Co Co
lu lu lu lu
mn mn mn mn

Co Co Co Co
lu lu lu lu
mn mn mn mn

Unemployment rate

Co Co Co Co
lu lu lu lu
mn mn mn mn

Co Co Co C
lu lu lu olu
mn mn mn mn

Co Co C
lu lu olu
mn mn mn

Rate

4.8%
4.5%
4.3%
4.0%
3.8%
3.5%
3.3%
3.0%
2.8%
2.5%
2.3%
2.0%
1.8%
1.5%
1.3%
1.0%
0.7%
0.5%
0.2%
0.0%
-0.3%
-0.5%
-0.8%
-1.0%
-1.3%
-1.5%
-1.8%
-2.0%
-2.3%
-2.5%
Co Co Co
lu lu lu
mn mn mn

Co Co Co Co
lu lu lu lu
mn mn mn mn

Co Co Co
lu lu lu
mn mn mn

Co Co Co Co
lu lu lu lu
mn mn mn mn

Time

Co Co Co Co
lu lu lu lu
mn mn mn mn

Co Co Co Co
lu lu lu lu
mn mn mn mn

Co Co Co C
lu lu lu olu
mn mn mn mn

Co Co C
lu lu olu
mn mn mn