is lm model questions answers


  • What does the IS-LM model explains?

    The IS-LM model, which stands for “investment-saving” (IS) and “liquidity preference-money supply” (LM) is a Keynesian macroeconomic model that shows how the market for economic goods (IS) interacts with the loanable funds market (LM) or money market.
  • What is the IS-LM model formula?

    Y e q u i l = ( 1 1 ? ? ) × E 0 ( r ) . Given a level of the real interest rate, we solve for the level of autonomous spending (using the dependence of consumption and investment on the real interest rate) and then use this equation to find the level of output.
  • What are the assumptions of the IS-LM model?

    IS-LM Model Assumptions. All businesses make similar products, which are utilized for consumption and residential investment. There is no influence of aggregate supply on the equilibrium level of income, defined by aggregate demand. The only assets in the financial-market are money and bonds.
  • 1Question 2.2(a)We are asked to derive the IS and LM relations.3(i)The IS relation is found using the identity:4Y = C + I + G.5Y = 1100 – 2000i : Which is the IS relation.6(ii) The LM relation is found by first equating Money Supply with Money Demand:7(M / P)s = (M / P)d.
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