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GLOBAL FINANCIAL

CRISIS AND ITS IMPACT
ON REAL AND
FINANCIAL SECTORS IN
INDIA

GROUP 2:
* Acaso * Estor
* Banaag * Ubanan
* Damasing

. PROBLEM Aggregate demand grew further and inflation climbed higher as India lowered its interest rates.

FACTS .

resulting in a surge in demand for commodities.  The more consumers spend. of course. making consumers spend more. and sometimes.  The demand is less than the supply. the hike in prices stabilize. prices even come down. would mean that consumers find it more difficult to buy goods and services. .  Higher interest rates  Make people cautious and encourage them to save more and borrow less.  An increase in demand which can’t be met by supply results in inflation. Lower interest rates  Translate to more money available for borrowing. the more the economy grows.  Less money. while there’s no change in supply.

represents the amount of money available for investing (supply) . The model explains the decisions made by investors when it comes to investments with the amount of money available and the interest they will receive. M = Money) .variation of the income-expenditure model incorporating market interest rates (demand)  LM curve (L = Liquidity. . Equilibrium is achieved when the amount invested equals the amount available to invest. S = Savings) . ECONOMIC THEORY  IS-LM Model  IS curve (I = Investment. .

 It ignores the time-lags which are important in examining the effects of economic policy changes. LIMITATIONS OF THE IS-LM MODEL  It is a comparative-static equilibrium model.  It ignores the time-lags which are important in examining the effects of economic policy changes.  It has been called the fix-price model. .

they may invest more regardless of the interest rate.  A change in private fixed investment  If consumers/firms feel more confident about the future. This will cause a decrease in investment (IS shifts left). APPLICATION  Possible shifts in the IS curve  Change in Fiscal policy  The government can increase government spending (shifting IS right) or decrease government spending (shifting IS left). they may invest less regardless of the interest rate.  If consumers/firms feel less confident about the future. . This will cause an increase in investment (IS shifts right).  The government can increase taxes which lowers consumer spending (shifting IS left) or decrease taxes which increases consumer spending (shifting IS right).

 If the central bank (or Federal Reserve) decides to decrease the money supply (by selling t bills) then the LM curve shifts left.  A change in the overall price level  If the central bank (or Federal Reserve) decides to increase the money supply (by buying t bills) then the LM curve shifts right. .  If the central bank (or Federal Reserve) decides to decrease the money supply (by selling t bills) then the LM curve shifts left. Possible shifts in the LM curve  A change in money supply  If the central bank (or Federal Reserve) decides to increase the money supply (by buying t bills) then the LM curve shifts right.

monetary and fiscal stimulus package are essential. SLR etc. CONCLUSION In order to overcome the global economic crisis. Monetary & fiscal policy both should be coordinated for overall better performance of Indian economy. More transparency is required in the process of setting bank rate. repo rate. . The RBI must lower the policy rates further to bring down the costs of funds and boost the growth momentum. CRR. The link between monetary policy and financial stability need to be understood and more autonomy to the central bank should be given to maintain the enviable reputation earned by RBI. reverse repo rate.

& Muley.9. No. No. Vol. “Global Financial Crisis and Its Impact on India”.5. (2010). Southern Economist.1. “Global Recession and Indian Service Sector”. July 01. 2010. S.  Shinde. September 1.  Takale. & More. Vol.49. No.49. pp. “Impact of Global Economic Crisis on Indian Economy”. 12-14. Southern Economist. 2010. D. January 15.18. D. . A.S. (2010). A.K. 2010.S.No. “Global Economic Recession and Changes in Macro-Economic Variables in World  Economy”.N.50. Vol. (2010).49. May 01. 2012. M. Southern Economist. REFERENCES  Bhunia. Vol. Southern Economist. (2012).  Pawar.