岭南学院MacroeconomicsReviewPartIIIAggregateDemand.pptVIP

Macroeconomics Review-Part IIIAggregate Demand Introduction Two main themes in macroeconomics: Economic Growth Economic Fluctuation Economic fluctuation is the second main theme concerned with both the long-run and short-run horizons. Introduction In the classical economic theory,the aggregate supply alone determines the level of total output and national income; However,the Great Depression caused many economists to question the validity of classical economic theory. In The General Theory of Employment,Interest and Money,Keynes proposed that low aggregate demand is responsible for the low income that characterize econo- mic downturn. Introduction The IS-LM model is the leading interpretation of Keynes’s theory. Introduction Introduction The aggregate demand (AD) curve presents, for each given price level, the level of output at which the goods markets and money markets are simultaneously in equilibrium. So we must use IS-LM model to analyze the goods markets and money markets to seek for the state of equilibrium. The IS-LM shows the determination of income in the short-run. Because the interest rate influences both the equilibrium in the goods market and the money market,it is the variable that links the two halves of the IS-LM model. Outline The Goods Market and the IS Curve: -The Derivation of IS Curve; -Shifts in the IS Curve; -The Algebraic Version of the IS Curve; -An Alternative Way of Deriving IS Curve; Outline The Money Market and the LM Curve: -The Derivation of LM Curve; -Shifts in the LM Curve; -the Algebraic Version of the LM Curve; Outline The Determination of Short-run Equilibrium Adding Dynamics to IS-LM Model; The AD Curve The Goods Market Equilibrium The IS curve shows the combinations of the interest rate and the level of income that are consistent with equilibrium in the market for goods and services. So we have to find out the equilibrium condition in the