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Intermediate Macro Ch.11 Outline

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CHAPTER 11

MONEY, INTEREST, AND INCOME

Chapter Outline

• The Goods Market and the IS Curve • Investment and the Interest Rate • The Slope of the IS Curve • The Role of the Multiplier • The Position of the IS Curve • A Summary of the IS Curve • The Money Market and the LM Curve • The Demand for Money • The Supply of Money, Money Market Equilibrium and the LM Curve • The Slope of the LM Curve • Shifts in the LM Curve • A Summary of the LM Curve • Equilibrium in the Goods and Money Markets • Changes in the Equilibrium Income and Interest Rate: A First Look at Policy • Deriving the Aggregate Demand Curve • Working With Data

Changes from the Previous Edition

One of the major problems with this chapter in the previous editions is that the material was presented in a manner that made it sound like it would be difficult, which is not true. Therefore, the long introduction has been shortened, the confusing diagram (former Figure 12-2) has been removed, and the extra part concerning outline of the chapter has been removed. The derivation of the IS curve section has been rewritten at the beginning. Box 11-1 and Box 11-2 and 11-3 are new The LM curve section has been rewritten to make it more clear, and the relevant diagrams are now side by side, which makes much more sense. The last section of the chapter is rewritten to show the comparative statics of shifts in IS and LM; this serves as a good introduction to Chapter 12.

Learning Objectives

• Students should be aware that the IS-LM model discussed here is a simplified, short-run, static macro-model, in which prices are assumed to be fixed. • Students should understand that every point on the IS-curve represents an equilibrium in the expenditure sector and every point on the LM-curve represents an equilibrium in the money sector. • Students should be

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