W3P2 - NotebookLM Flashcards
What two factors does the IS schedule plot against each other?
The IS schedule plots income on the horizontal axis and the interest rate on the vertical axis. It illustrates an inverse relationship between interest rates and output.
In the goods market, when do we have excess supply versus excess demand in relation to the IS curve?
o To the right of the IS curve: excess supply.
o To the left of the IS curve: excess demand.
What is the big feature of the ISLM model?
The ISLM model endogenizes the interest rate. It explains output and the interest rate jointly, thus creating a general equilibrium model.
What causes a shift in the IS schedule?
A shift in the IS schedule can be caused by a change in government spending. For example, increased government spending shifts the AE curve upwards, leading to a new equilibrium with higher output, and shifts the IS schedule to the right.
What does the LM schedule represent?
The LM schedule represents all possible equilibria in the money market. It shows that when output increases, interest rates have to increase.
What causes a shift in the LM schedule?
A shift in the LM schedule is caused by a shift in money supply. For instance, if the central bank increases the money supply, the LM schedule shifts downwards.
What causes movement along the IS or LM schedule versus a shift of the curves themselves?
o Movement along IS or LM: Changing interest rates.
o Shift of IS: Change in government spending.
o Shift of LM: Change in the money supply.
