文档介绍：Intermediate Macroeconomics
Lecture 8
The Money Market & LM Curve
The theory of liquidity preference
r
M/P
The Money Market & LM Curve
Paul Volcker
To fight high inflation Tight money policy (Oct. 1979)
The Money Market & LM Curve
How does such a ary tightening influence interest rate?
It depends…
LR: Fisher effect: inflation↓ interest rate ↓
SR: Liquidity theory: M ↓ interest rate ↑
The Money Market & LM Curve
e, money demand, & LM curve
r
M/P
r2
r1
r
Y
Y1
Y2
LM
The Money Market & LM Curve
An algebraic example of LM curve
Short-Run Equilibrium
IS-LM Model
The intersection of IS and LM represents simultaneous equilibrium in the market for goods and services and in the market for real money balances at a give price level
IS
LM
r
Y
Exercise
P254 4.
Consider the impact of an increase in thriftiness in the Keynesian Cross. Suppose , where is a parameter called autonomous consumption and c is the marginal propensity to consumption.
What happens to equilibrium e when the society es more thrifty (decline in )?
What happens to equilibrium savings?
Why do you suppose this result is called the paradox of thrift?
Answer
a.
E
Y
Answer
b. Equilibrium savings would not be affected.
Because in Keynesian Cross, S=I, because I does not change, S would not change.