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Copyright © 2006 Pearson Addison-Wesley. All rights reserved. Chapter 4 Monetary and Fiscal Policy in the IS-LM Model.

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Presentation on theme: "Copyright © 2006 Pearson Addison-Wesley. All rights reserved. Chapter 4 Monetary and Fiscal Policy in the IS-LM Model."— Presentation transcript:

1 Copyright © 2006 Pearson Addison-Wesley. All rights reserved. Chapter 4 Monetary and Fiscal Policy in the IS-LM Model

2 Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 4-2 Table 4-1 A Simplified Version of the Fed’s Balance Sheet (All Values in $ Billions)

3 Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 4-3 Figure 4-1 The Demand for Money, the Interest Rate, and Real Income

4 Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 4-4 Figure 4-2 Effect on the Money Demand Schedule of a Decline in Real Income from $8,000 to $6,000 Billion

5 Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 4-5 Figure 4-3 Derivation of the LM Curve

6 Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 4-6 Figure 4-4 The IS and LM Schedules Cross at Last

7 Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 4-7 How Monetary Policy Actually Worked in 2001–04

8 Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 4-8 Figure 4-5 The Effect of a $1,000 Billion Increase in the Money Supply With a Normal LM Curve

9 Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 4-9 Figure 4-6 The Effect on Real Income and the Interest Rate of a $500 Billion Increase in Government Spending

10 Copyright © 2006 Pearson Addison-Wesley. All rights reserved Figure 4-7 The Effect of an Increase in the Money Supply With a Normal LM Curve and a Vertical LM Curve

11 Copyright © 2006 Pearson Addison-Wesley. All rights reserved Figure 4-8 Effect of the Same Increase in the Real Money Supply with a Zero Interest Responsiveness of Spending and with a High Interest Responsiveness of the Demand for Money

12 Copyright © 2006 Pearson Addison-Wesley. All rights reserved Figure 4-9 Effect of a Fiscal Stimulus when Money Demand Has an Infinite and a Zero Interest Responsiveness

13 Copyright © 2006 Pearson Addison-Wesley. All rights reserved Figure 4-10 The Effect on Real Income of a Fiscal Stimulus With Three Alternative Monetary Policies (1 of 2)

14 Copyright © 2006 Pearson Addison-Wesley. All rights reserved Figure 4-10 The Effect on Real Income of a Fiscal Stimulus With Three Alternative Monetary Policies (2 of 2)

15 Copyright © 2006 Pearson Addison-Wesley. All rights reserved Figure 4-10 The Effect on Real Income of a Fiscal Stimulus With Three Alternative Monetary Policies

16 Copyright © 2006 Pearson Addison-Wesley. All rights reserved International Perspective Monetary and Fiscal Policy Paralysis in Japan’s “Lost Decade”

17 Copyright © 2006 Pearson Addison-Wesley. All rights reserved International Perspective Monetary and Fiscal Policy Paralysis in Japan’s “Lost Decade”


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