IS-LM

[late_show]

Okay, tell me what part(s) of this is wrong:

An increase in G shift the IS curve to the right, which increases Y, R, M, & net exports.

An increase in Money Supply (M/P) shifts the LM curve to the right, which increases Y and M and decreases R and net exports.

Please Help! Thanks!

The Village Idiot

[Little Puppy]

Why is M increased? If M is increased, the IS curve is shifted to the left.

[radrach]

Why would increase G cause increase in M?

Does NX increase as a result of the increase in r?


All else looks good.

[George Washington]

Y and R do increase as a result of an increase of G.

As the interest increase people will in turn want to invest more rather than keeping the money at home. The consequence of this is an increase in the money supply.

How much is that increase is a completely different story. I will have to assume that it is small (kind of like a “second hand effect”)

When interest increase net export decreases.

[NewTubaBoy]

Little Puppy: Increasing M DOES NOT shift the IS curve at all....ever... in any circumstance. M is in the money market and the only thing that it shifts is the LM curve.

Late show: To answer your questions:


An increase in G Does shift the IS curve to the right. This results in Multiplier effects causing Consumption to increase. Since the IS curve shifted to the right, this causes interest rates to INCREASE. An increase in interest rates causes Investment to decrease and NX to decrease causing a movement along the IS curve to a new higher equilibrium. Overall you have higher Y and higher interest rates.

An increase in the real money supply (M/P) causes th LM curve to shift to the right. This leads to higher Y but lower interest rates. With lower interest rates NX increase and so does investment. This is movement along the IS curve to new equilibrium.

How's that? Does that help?

[late_show]

Thanks to everyone for their help! I really just don't like the IS-LaMe curves. I'm slowly catching on to it, though. Okay, time for a Dairy Queen Blizzard!

Dave

[radrach]

NewTubaBoy,
Well said. This info fell out of my brain about a month ago.

[Little Puppy]

"Little Puppy: Increasing M DOES NOT shift the IS curve at all....ever... in any circumstance. M is in the money market and the only thing that it shifts is the LM curve. "

Oops! I thought M stands for imports & hence it shifts the IS curves if it increases :oops: