Week 3 - Applying the IS-LM model

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Last week we familiarized ourselves with the technical details of the IS-LM model. This week we continue using the IS-LM model to analyze the behavior of the economy in the short run.

We pay particular attention to how different shocks to the economy shift either the IS curve or the LM curve.

We also analyze in detail the effect of different economic policies. The term 'fiscal policies' usually refers to changes in G or T. Such changes shift the IS curve. Monetary policies usually refer to policies performed by the Central Bank (e.g. the Fed) that intend to change money supply, Ms. Such policies shift the LM curve.

At the end of this week, you should be able to analyze how different fiscal or monetary policies can be used to affect equilibrium levels of output and interest rates in the economy in the short run.

While last week we focused on understanding the technical details of the model, this week our focus is on understanding how the model works and can be applied to explain the effects of different policies. 

 


To Do: