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Y2 Fundamental Macroeconomics > IS-LM model > Flashcards

IS-LM model Flashcards

1
Q

What’s the first way of expressing equilibrium (keynes)

A

Y = C + I + G

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2
Q

What is the second way of expressing equilibrium (keynes)

A

S + T = I + G

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3
Q

What is the third way of expressing equilibrum? (Keynes)

A 
I^r = I
I^r = Actual investment 
I = Desired investment
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4
Q

At all points on the IS curve, the goods market is:

A

In equilibrium

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5
Q

The IS curve slopes:

A

Downward

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6
Q

According to Keynes, you can hold your assets in:

A

Bonds or Money

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7
Q

What are the motives for demanding money

A
  • Transaction demand
  • Precautionary demand
  • Speculative demand
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8
Q

What is speculative demand

A

Demand that comes about because of the relationship between bonds prices and the rate of interest

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9
Q

LM shows us all the points where:

A

The money market is in equilibrium

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10
Q

The axis on the LM curve are:

A

Income - X axis

Interest rate - Y axis

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11
Q

The LM curve slopes:

A

Upward

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12
Q

What is the money demand equation?

A

co +c1Y + c2r

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13
Q

What is the factor that affects the slope of the LM curve?

A

Elasticity of money demand

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14
Q

When interest elasticity of money demand is low, the LM curve is:

A

Steep

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15
Q

When interest elasticity of money demand is high, the LM curve is:

A

Flatter

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16
Q

When c1 is high, the LM curve is:

A

Steep

17
Q

Equilibrium between IS and LM gives us equilibrium in the:

A
  • Goods market
  • Money market
  • Bond market
18
Q

When we increase the money supply, the rate of interest:

A

Falls

19
Q

What are the implications of the expectations of the relation between consumption and income?

A
  • Consumption is likely to respond less than one-for-one in current income
  • Consumption may move even if current income does not change
20
Q

What are rational expectations?

A

Expectations formed in a forward looking manner

21
Q

What are static expectations?

A

People expect the future to be like the present

22
Q

The net effects of the three shifts in the IS curve depends on:

A
  • Timing
  • Composition
  • Initial situation
  • Monetary

Y2 Fundamental Macroeconomics (20 decks)

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