BRITISH UNIVERSITY VIETNAM

19
UNIVERSITY OF LONDON UNIT EC1002

INTRODUCTION TO ECONOMICS TUTORIAL SHEET

Mark Harris February 2023
UoL B.Sc. Year 1 - 2022/2023

– The IS –

1. Why is the IS curve called the "goods market equilibrium" schedule?

2. What happens in situations where the rates of interest and the levels of income are such that their solution
is not on the IS curve?

3. Derive the IS schedule from the Keynesian 45o National Income model.

4. Why is the IS negatively sloped? What factors determine its gradient?

5. What factors determine the position of the IS?

6. Describe what happens, if anything, to the IS curve given the following scenarios:

a) A decrease in the interest response

b) A decrease in Government Expenditure

c) An increase in the Marginal Propensity to Consume

d) A cut in the basic rate of tax, coupled with an increase in autonomous investment
expenditure

e) A recession in the United States

f) A depreciation of the domestic currency

University of London | Introduction to Economics | Tutorial Sheet 19 Page | 1

BRITISH UNIVERSITY VIETNAM

– The LM –

7. Why is the LM curve called the "assets market equilibrium" schedule?

8. What happens in situations where the rates of interest and the levels of income are such that their solutions
are not on the LM curve?

9. Using your knowledge of the supply and demand for money, derive the LM schedule.

10. Why is the LM positively sloped? What factors determine its gradient?

11. What factors determine the position of the LM curve?

12. Describe what happens, if anything, to the LM curve given the following scenarios:

a) An increase in the interest response

b) A decrease in real money supply

c) A decrease in the Reserve asset Ratio

d) A financial crisis such as a stock market collapse

e) The interest rate falls so low that the economy moves into the Liquidity Trap.

University of London | Introduction to Economics | Tutorial Sheet 19 Page | 2