...with IS-LM and AS-AD models. First of all we will explain the effect of decreasing UK government’s R&D expenditures with IS-LM model. IS-LM curve is a macroeconomic model that graphically represents two intersecting curves. It focuses short run relationship between output and interest rate in the goods and financial markets. The IS curve is downward sloping and LM curve is upward sloping. If government decreases the spendings IS curve shifts left. Both output and interest rates decrease in the economy. LM curve doesn’t shift. If we look which way the investment change in the short run, it has different dimensions. Initially when government expenditures decreases cause decrease in output or income. So it can reduce the investment. In the second place decreasing government expenditures may lead to decrease in interest rates. Lower interest rates would make borrowing cheaper and should encourage firms or governments to invest. That’s why investment may increase. In our case we have seen that decreasing UK Government’s R&D expenditures cause both government and business investment fell. In summary according to the news about decreasing UK’s R&D spendings has negative effect in British economy. Secondly we will express the impact of UK Government’s decreasing spendings of R&D which is a government expenditure with AS-AD model. The AD–AS(aggregate demand–aggregate supply model) which is based on the Keynes’s economy theory is a macroeconomic model that explains price...
Words: 519 - Pages: 3
...Assignment 1 1) From previous studies we know that a monetary expension leads to higher level of real GDP and higher price level.In this case, the endogenous veriable Y increases its value, from Y to Y1. The price level also goes up from P to P1, as shown in the AS-AD model under, in which the aggregate demand (rapresented by the AD curve) reaches a higher level. In the LM-IS model a monetary expansion policy makes the LM curve move rightward, from LM to LM1, which means a lowering in the interest rate and an increase of real GDP, from Y to Y1, in the short run. 2a) ε=0,5 M0=1Ɵ*1*H M1=1Ɵ*0,5*H If the banking sector is not efficient the money supply decreases from M0 to M1, whose amount after the crisis is half of the the one before. Referring to AS-AD model, the aggregate demand curve moves rightward, but less than in the case without any crisis (ε=1), and the same happens to the LM curve. There will be an increase in Y and P, a decrease in i but all these changes will be smaller than in the other case. What has been described above is the short term effect. In the medium run there will be an adjustment that leads the LM curve back to its previous position. 2b) The ECB has two tools to counteract the effect of a decrease in efficiency of commercial banking sector. It can change the minimum reserve requirements (mrr) or the the monetary base. In the first case, with ε=0,5, ECB can cut the mrr of half, as it comes...
Words: 736 - Pages: 3
...organizational culture appropriability construct DefinitionSave to FavoritesSee Examples The values and behaviors that contribute to the unique social and psychological environment of an organization. Organizational culture includes an organization's expectations, experiences, philosophy, and values that hold it together, and is expressed in its self-image, inner workings, interactions with the outside world, and future expectations. It is based on shared attitudes, beliefs, customs, and written and unwritten rules that have been developed over time and are considered valid. Also called corporate culture, it's shown in (1) the ways the organization conducts its business, treats its employees, customers, and the wider community, (2) the extent to which freedom is allowed in decision making, developing new ideas, and personal expression, (3) how power and information flow through its hierarchy, and (4) how committed employees are towards collective objectives. It affects the organization's productivity and performance, and provides guidelines on customer care and service, product quality and safety, attendance and punctuality, and concern for the environment. It also extends to production-methods, marketing and advertising practices, and to new product creation. Organizational culture is unique for every organization and one of the hardest things to change Organizational culture is the collective behavior of humans who are part of an organization and the meanings that the...
Words: 5813 - Pages: 24
...Part (A) IS-LM, Aggregate Demand and Aggregate Supply Behavioral Equations, Identities, Equilibrium Conditions and List of Exogenous and Endogenous Variable The IS-LM Model is based upon six Behavioral equations, each describing the determinants of one of the macroeconomic variable considered by the model: 1. Consumption 2. Investment 3. Government spending 4. Tax revenue 5. Money demand 6. Money supply The description of the IS-LM model is completed by three key identities that are defining the links between aggregate demand, aggregate supply and the equilibrium level of income. Aggregate demand: Z = C=I=G --------------------------------1 Since firms produce as many goods and services as demanded in the economy, the aggregate supply is written as: Y=Z --------------------------------2 Combination of the equation 1 and 2 gives income identity for a closed economy Y = C + I + G. This states that in equilibrium aggregate income must be equal to aggregate demand. Exogenous variables: G: Government spending T: Tax on income M: Money supply P: Price level (fixed in the short-run) Endogenous variables: Y: Production C: Consumption I: Investments R: Interest rate Behavior Equations Y= C + I + G C= C0 + Cyd Yd –Cr r I= I0 + Ir r G= G TA = TA + Ty Y LM Behavior Equation L=M L=L0 + LyY – Lr r M=M0/P Production Function Y= Aƒ (K,N) Identities of IS C= ƒ (Y+, r –) I = ƒ (r -) G=G S=...
Words: 1811 - Pages: 8
...There are many economists who have played a big part in the economy. Their research and theory’s have made history, which has improved and helped the economy for numerous years. A British economist, Sir John Richard Hicks was one of the most important and influential economists of the 12th century. Hicks was born on 8th April 1904 and passed away at the age of 85 on 20 May 1989. He was known for the several contributions however mainly for his statement of consumer demand theory in microeconomics and IS/LM model, which was taken place in 1937. For more than fifty years various important contributions bubbled out from his pen. Hicks studied at Clifton College and Balliol College, Oxford during his early years and was financed by a mathematical scholarships. Hicks graduated with second-class honors and he states, "no adequate qualification in any of the subjects" that he had studied. Hick’s was the first British economist to receive the Nobel Prize in 1972 as his contributions in the field of economics was outstanding. Hicks moved on and lectured at the London School Of Economics and Political Science. He was influenced by many economists, one being Ursula Webb who ended up becoming his wife in 1935. As Hicks got older, the more experience and knowledge he gained. Further on in 1935 to 1938 he lectured at Cambridge and then made it to the Manchester University where he was the professor. Hicks did his central work at on the idea of welfare economics, with its application to social...
Words: 521 - Pages: 3
...Effectiveness of Fiscal Policy under Both Fixed and Floating Exchange Rates using IS-LM-BP Model In order to examine the degree in which fiscal policy can be used effectively in this model, the variables that directly influence the outcomes of its use need to be identified. These are, exchange rate regime whether fixed of flexible that is in place and the degree that capital is mobile. The level of capital mobility is how challenging or simple it is for private individuals or firms to move funds across borders. Exchange rate regimes fall into two categories fixed and flexible, flexible exchange rate means that it is determine by supply and demand factors of said currency. In a fixed exchange rate scheme the value of the domestic exchange rate is fixed to a certain level, often to another currencies price or other commodity this can make trade between the given economy easier. Here is 8 combinations of fixed and flexible exchange rate and levels of capital mobility and how the outcomes show the effectiveness or ineffectiveness of the fiscal policy expansion policy implementation. Fiscal Expansionary Policy within a Flexible Exchange Rate Scheme with Somewhat Mobile Capital The mobility of the capital can be determine by the steepness off the BP curve, the steeper the curve the more mobile the capital as it is in this case. The expansionary policy is implemented and shifts the IS curve from IS1 to IS2 moving the equilibrium point from A to B, this leads to an overall deterioration...
Words: 1100 - Pages: 5
...This pack of ECO 316 Week 4 Chapter 24 Linking the Financial System and the Economy The IS-LM-FE Model contains: 24.1 Multiple Choice Questions 1) Why did the Fed cut interest rates in late 1991? 2) Why did the Fed cut interest rates in late 1998? 3) A general equilibrium is an outcome in which 4) The money market includes trade in 5) Purchases and sales of stocks, bonds, and houses take place 6) In macroeconomic models, Y typically represents 7) In macroeconomic models, Y stands for 8) An increase in the expected profitability of investment will cause 9) A closed economy is one in which 10) In a closed economy, the total quantity of goods demanded equals the sum of 11) In a closed economy, the goods market is in equilibrium when 12) In a closed economy, if the goods market is in equilibrium, national saving is $2 trillion, national consumption is $7 trillion, and government purchases are $2.5 trillion, then GDP equals 13) In a closed economy, national saving equals 14) For the goods market to be in equilibrium in a closed economy, which of the following must be true? 15) Which of the following is NOT a key factor in determining household saving? 16) An increase in the expected real interest rate will have a 17) An increase in government purchases reduces national saving as long as 18) Evidence suggests that when government purchases rise 19) An increase in the real interest rate will 20)...
Words: 399 - Pages: 2
...between Keynesians and monetarists over the effectiveness of fiscal and monetary policy in the IS-LM framework. Introduction In economics there are two main schools of thought; these schools differ in their belief of what policies are best suited to attain full employment in the economy. Keynesians tend to favour demand side policies and are more prone to intervene in the market and therefore prefer to use fiscal policy whilst monetarists believe adjustments in money supply is more appropriate in stabilising the market ,therefore preferring monetary policy. In this essay I will discuss the views of Keynesians and monetarists regarding the effectiveness of monetary and fiscal policies in controlling aggregate demand through the IS-LM framework. I will first provide a brief description of the curves explaining their formation and what they represent and then I will go on to examine monetary and fiscal policy within the IS-LM framework. Finally, I will examine the views of monetarist and Keynesians regarding the effectiveness of both policies in raising the level of national l income and also consider the extreme cases. IS-LM framework The IS-LM model was initially developed by John Hicks in 1937 but was made popular in 1949 by Hansen in order ‘to provide a framework for analyzing the factors determining the level of aggregate demand’. The IS-LM model is a short run model of the determination of output. It shows the unique combination of income and interest rates that...
Words: 1861 - Pages: 8
...shocks 8. The goods market and the IS curve (Keynesian cross, equilibrium equation, derivation of the IS curve) 9. Fiscal policy implications in the goods market 10. Multipliers (government purchases and tax multipliers), and the exact magnitude of change of output per change of government purchases and taxes 11. The money market and the LM curve (equilibrium condition, money demand function and derivation of the LM curve) 12. Monetary policy implications in the money market 13. The short-run equilibrium in the IS-LM framework 14. Fiscal and monetary policy implications in the IS-LM framework (you should know how policies affect the goods market, money market, and ultimately affects the IS-LM model through r and Y) 15. Interaction between monetary and fiscal policy (Fed’s response) 16. Explain the recent recession and weak recovery using the IS-LM framework 17. IS-LM and aggregate demand, how to derive AD using the IS-LM model 18. Fiscal and monetary policy implications on the AD curve 19. Short-run to long-run adjustments in the IS-LM model 20. The Mundell-Fleming model (IS*-LM* framework) 21. Equilibrium conditions in the goods and money market for a small open economy 22. Monetary and fiscal policy under float exchange rate regime 23. Monetary and fiscal policy under fixed exchange rate regime 24. Trade policy under float/fixed exchange rate regimes 25. The debate over the Euro: under what...
Words: 348 - Pages: 2
...Jahangirnagar University Institute of Business Administration Essay On The Standard Supply & Demand Model and The Aggregate Supply & Demand Model Course: BUS 209-Macroeconomics Submitted to: Dr. Shuddhasattwa Rafiq Director and Associate Professor Institute of Business Administration Jahangirnagar University Submitted by: Md. Nahid Alam Class ID: 2368 (21st batch) Institute of Business Administration Jahangirnagar University Date of Submission: 11-06-2013 Essay On The Standard Supply & Demand Model and The Aggregate Supply & Demand Model June 11, 2013 Dr. Shuddhasattwa Rafiq Director and Associate Professor Institute of Business Administration Jahangirnagar University Savar, Dhaka-1342. Subject: Essay Submission. Sir It’s my immense pleasure to submit the essay on “The Standard Supply & Demand Model and The Aggregate Supply & Demand Model” that you have assigned me at the beginning of this semester. Submitting this essay is the partial fulfillment of this particular course. I believe that this essay will help to understand supply and demand, how supply and demand curves derive in microeconomics & macroeconomics and what determines the slopes of supply and demand curves. Thank you for giving the opportunity to prepare this report. It was really a wonderful experience. I hope you find this essay satisfactory. Sincerely, ------------------------- TABLE OF CONTENTS Context Name | Page...
Words: 4888 - Pages: 20
...of output • The U.S. economy in the 1980s and 1990s • Anticipatory monetary policy • The policy mix during the German re-unification Changes from the Previous Edition: The material in this chapter has been updated, but its format is essentially the same. More emphasis is given to the economic expansion in the U.S. in the 1990s. Introduction to the Material: Chapter 11 uses the IS-LM model derived in Chapter 10 to show how monetary and fiscal policies can be used to dampen economic disturbances. The economic effects of various policy mixes are highlighted in discussions of actual events: the recession and recovery in the United States in the 1980s, the U.S. recession in 1990-91, the long economic expansion thereafter, and the policies enacted by Germany during the re-unification process in 1990-92. First, the Fed's conduct of monetary policy is discussed, with an explanation of how open market operations can be used to change nominal money supply. The effectiveness of monetary policy in changing the amount of output demanded depends on the steepness of the LM-curve. The transmission mechanism, that is, the process by which monetary policy changes affect the economy, occurs in several steps. First, a change in money supply leads portfolio holders to make adjustments in their asset holdings. As a result, asset prices and interest rates change. The change in interest rates subsequently affects intended spending and thus national income. Table 11-1 provides a...
Words: 9155 - Pages: 37
...3 a) > model=lm(taste~Acetic+H2S+Lactic, data=cheddar) > summary(model) lm(formula = taste ~ Acetic + H2S + Lactic, data = cheddar) Residuals: Min 1Q Median 3Q Max -17.390 -6.612 -1.009 4.908 25.449 Coefficients: Estimate Std. Error t value Pr(>|t|) (Intercept) -28.8768 19.7354 -1.463 0.15540 Acetic 0.3277 4.4598 0.073 0.94198 H2S 3.9118 1.2484 3.133 0.00425 ** Lactic 19.6705 8.6291 2.280 0.03108 * Signif. codes: 0 '***' 0.001 '**' 0.01 '*' 0.05 '.' 0.1 ' ' 1 Residual standard error: 10.13 on 26 degrees of freedom Multiple R-squared: 0.6518, Adjusted R-squared: 0.6116 F-statistic: 16.22 on 3 and 26 DF, p-value: 3.81e-06 b) β0̂≈28.8768 β ̂Acetic≈0.3277 β ̂H2S≈3.9118 β ̂Lactic≈19.6705 c) P-value of H2S and Lactic is 0.00425 and 0.03108, less than 0.05, so both of them are statistically significant. d) > cor(fitted(model),cheddar$taste) [1] 0.8073256 > cor(fitted(model),cheddar$taste)^2 [1] 0.6517747 So the result approximately closes to the Multiple R-squared 0.6518. e) Set another model like follow: > model2=lm(taste~0+Acetic+H2S+Lactic, data=cheddar) > summary(model2) lm(formula = taste ~ 0 + Acetic + H2S + Lactic, data = cheddar) Residuals: Min 1Q Median 3Q Max -15.4521 -6.5262 -0.6388 4.6811 28.4744 Coefficients: Estimate Std. Error t value Pr(>|t|) Acetic -5.454 2.111 ...
Words: 864 - Pages: 4
...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...
Words: 8863 - Pages: 36
...Monetarists over the Effectiveness of Fiscal and Monetary Policy in the Is-Lm Framework In: Business and Management Keynesians and Monetarists over the Effectiveness of Fiscal and Monetary Policy in the Is-Lm Framework Discuss the difference between Keynesians and monetarists over the effectiveness of fiscal and monetary policy in the IS-LM framework. Introduction In economics there are two main schools of thought; these schools differ in their belief of what policies are best suited to attain full employment in the economy. Keynesians tend to favour demand side policies and are more prone to intervene in the market and therefore prefer to use fiscal policy whilst monetarists believe adjustments in money supply is more appropriate in stabilising the market ,therefore preferring monetary policy. In this essay I will discuss the views of Keynesians and monetarists regarding the effectiveness of monetary and fiscal policies in controlling aggregate demand through the IS-LM framework. I will first provide a brief description of the curves explaining their formation and what they represent and then I will go on to examine monetary and fiscal policy within the IS-LM framework. Finally, I will examine the views of monetarist and Keynesians regarding the effectiveness of both policies in raising the level of national l income and also consider the extreme cases. IS-LM framework The IS-LM model was initially developed by John Hicks in 1937 but was made popular in 1949 by...
Words: 360 - Pages: 2
...Name: __________________________ Date: _____________ 1.|Explain the following concepts:IS shocks, LM shocks| 2.|Use the IS/LM-AD/AS model to illustrate graphically how expansionary fiscal and monetary policy can help stabilize the output when economy is in a recession. | 3.|Use the IS-LM model to derive the AD curve and to show how expansionary fiscal and monetary policy can shift the AD curve. | 4.|A decrease in government spending reduces output more in the Keynesian-cross model than in the IS-LM model. Explain why this is true.| 5.|Use the IS/LM-AD/AS model to graphically analyze short-run & long-run effects of a negative IS Shock.| 6.|Assume that an economy is characterized by the following equations:C = 100 + (2/3)(Y – T)|T = 600|G = 500|I = 800 – (50/3)r|Ms/P = Md/P = 0.5Y – 50r|a.|Write the numerical IS curve for the economy, expressing Y as a numerical function of G, T, and r.|b.|Write the numerical LM curve for this economy, expressing r as a function of Y and M/P. |c.|Solve for the equilibrium values of Y and r, assuming P = 1.0 and M = 1,200. How do they change when P = 2.0? Check by computing C, I, and G.|d.|Write the numerical aggregate demand curve for this economy, expressing Y as a function of G, T, and M/P.|| 7.|Assume the following model of the economy, with the price level fixed at 1.0:C = 0.8(Y – T)|T = 1,000|I = 800 – 20r |G = 1,000|Y = C + I + G |Ms/P = Md/P = 0.4Y – 40r|Ms = 1,200||a.|Write a numerical formula for the...
Words: 718 - Pages: 3
