This clip shows in simple examples how fiscal and monetary policy works in the IS/LM model. A combination of fiscal and monetary policy -- the policy mix -- can be used to achieve macroeconomic policy goals.
I really don't have time to go through those fat books since I am working; this helps me a lot for my degree exams.. Nicely explained with all the required graphs
"... the decrease in the interest rate leads to an increase in investment"; that is correct and what I say around 8:14. Note that at that time (8:14) I'm using the Keynesian cross (income -expenditure diagram) where the interest rate is exogenous.
on the fiscal portion of the video, shouldn't there be a third IS line on the IS/LM graph, placed in the middle of the first two IS lines?? (4:57) Because after the interest rate is increased from #4, it results in a decrease in Y which should lead to another decreasing shift of the IS line.
a bit late i know ... but for the benefit of other readers: my understanding is that the IS curve explains shifts in Z due to changes in interest rates .. as it explains the relationship between Y and i for the goods market. An exogenous shock to the model like changes in G or T, however, are not explained. This means that for changes in i, there is simply movement along the IS curve. For changes in G or T, the IS curve must shift - at any previous interest rate, the equilibrium output is now changed.
About the policy mix. I now understand what they mean with that. My question though is, in Europe and USA and I think most western countries political leader can do fiscal expansion or contraction but are not in power of monetary expansion or contraction, because the head of the ECB or FED is independent and should not have to listen to policymakers so my question is, is a mix as you described something that is rare or does it happen often?
Hi! I have a question. iincrease in money supply affects the LM curve shifting it downward which decrease interest rate and increases output. a decrease in interest rate, increases investment
Okay, ill try again.. removed my own comment by a mitake :( At 8:14 you are drawing a relationsship between interest rate and investment, right? You draw a positive relationsship though it should be negative/downward sloping since higher interest rate leads to lower investment, right? To me it looks like this: as interest rate rises, investment rises. Right og wrong? :)
Yes thats implied by the opportunity cost GGKK mentioned. Unless the cash hoarder has other reasons for holding cash. For example, illegal income would raise suspicion when deposited in large chunks at a bank.
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when demands in crease price of product decrease by 10% and use the increase sale in profit by buying material in bulk. If you understand what I said then you'll become a smart businessman
