宏观经济学hap10.ppt

* * * This slide simply states the intuition behind the graphs on the preceding slide. Suggestion: Omit this slide from your presentation, and just give the students this information verbally as you present the preceding slide. * The IS curve can also be derived from the (hopefully now familiar) loanable funds model from chapter 3. A decrease in income from Y1 to Y2 causes a fall in national saving. (Recall, S = Y-C-G) The fall in saving causes a reduction in the supply of loanable funds. The interest rate must rise to restore equilibrium to the loanable funds market. Now we can see where the IS curve gets its name: When the loanable funds market is in equilibrium, investment = saving. The IS curve shows all combinations of r and Y such that investment (I) equals saving (S). Hence, “IS curve.” * * This slide has two purposes. First, to show which way the IS curve shifts when G changes. Second, to actually measure the distance of the shift. We can measure either the horizontal or vertical distance of the shift. The horizontal distance of the IS curve shift is the change in Y required to restore goods market equilibrium AT THE INITIAL INTEREST RATE when G is raised. Since the interest rate is unchanged at r1, investment will also be unchanged. This is why, in the upper panel, we write “I(r1)” in the E equation for both expenditure curves – to remind us that investment and the interest rate are not changing. * * * We are assuming a fixed supply of real money balances because P is fixed by assumption (short-run), and M is an exogenous policy variable. * As we learned in chapter 4, the nominal interest rate is the opportunity cost of holding money (instead of bonds), so money demand depends negatively on the nominal interest rate. Here, we are assuming the price level is fixed, so ? = 0 and r = i. * * * This and the next slide summarize the case study on p.295. The data source is given on the next slide. At this point, students have