Lecture 9: Review •IS-LM •IS-LM •IS-LMLM * * LMi i i0 i1 Md(Y0) Md(Y1) Y0Y1 YM A) Expansionary Monetary Policy; B) Y2kIS OLD: Y = C(Y-T) + I + G I = I(Y,i) + -IS: Y = C(Y-T) + I(Y,i) + G Why IS?IS IS Z(i1) Z(i0) i0 A) Fiscal Policy; i1 B) “Optimism” Y0 Y1 YIS-LM Model i IS LM Y A) Fiscal policy; B) Monetary policy; C) Mix Parameters (slopes): L’ ; I_i; c1Small dI/di ISi1 i0 Z(i0) Z(i1) Z’(i1) A) Fiscal Policy; B) “Optimism” Y0 Y1 YSmall dI/di IS i LM Y A) Fiscal policy; Monetary policy; B) What about small d(C+I)/dY?Small dMd/dY * * LMi i i0 i1 LM’ Md(Y0) Md(Y1) Md’(Y1) Y0Y1 YM A) Expansionary Monetary PolicySmall dMd/dY i IS LM Y A) Fiscal policy; Monetary policy; B) What about small
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