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Determination of output. Equilibrium in GOODS and SERVICES Market and MONEY Market (Demand s ide of the economy). What is in the model?. GOODS MARKET The AE d = Y equality Other variables: C d , I d , G d , NX d , T, YD, ------------------------------ IS Curve. MONEY MARKET - PowerPoint PPT Presentation
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Determination of output
• Equilibrium in 1. GOODS and SERVICES Market and 2. MONEY Market
(Demand side of the economy)
What is in the model?
GOODS MARKET• The AEd= Y equality
• Other variables:Cd, Id, Gd, NXd, T, YD,
------------------------------IS Curve
MONEY MARKET• MD=MS equality
• Other variables:Y, i
--------------------------------LM Curve
IS – LM model
• Money Market• Goods marketi
Y
i
Y
IS LM
IS-LM equilibrium
• Equilibrium in both markets
i
Y
ISLM
IS-LM equilibrium
• Monetary Policy
i
Y
ISLM
IS-LM equilibrium
• Fiscal Policy:
i
Y
ISLM
Mathematical model of the IS-LM
• See class notes and homework assignment
• REVIEW ON THURSDAY LUNCH TIME
Fiscal Policy
1. Discretionary fiscal policy
2. Automatic stabilizers
Government Budget
• Maintaining a healty and sustainable government budget
• Primary Budget
• Consolidated Budget
Gov’t Budget= Taxes- Gov’t Expenditure- Transfer Payments
Gov’t Budget= Taxes- Gov’t Expenditure- Transfer Payments –interest Payments
Debt to GDP
ARGENTIN
A
AUSTRIA
BRAZILCHILE
COLOMBIA
DENMARK
EURO AREA
FRANCE
GREECE
INDIAIRAN
IRELAND
ITALY
MALAYS
IA
NETHER
LANDS
NORWAY
PHILIPPINES
PORTUGAL
SAUDI A
RABIA
SOUTH
AFRICA
SPAIN
SWITZ
ERLA
ND
THAILA
ND
UNITED ARAB EM
IRATES
UNITED ST
ATES
0
50
100
150
200
250
Debt to GDP
LAST
Country Risk Premium
Argentina
Brazil
Cypru
s
German
y
Greece
Irelan
dIta
lyJap
an
Mexico
Spain
Turke
y
United St
ates o
f Ameri
ca0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
Country Risk Premium
Country Risk Premium