Chapter Textbook

IS Curve

IS Curve

Shows the relationship between the real interest rate (r) and equilibrium output (Y) in the goods market.

MP Curve

Illustrates how the central bank adjusts the real interest rate (r) in response to changes in output (Y).

Government Purchases

Increasing them shifts the IS curve right, raising the equilibrium interest rate and output.

Tighter Monetary Policy

Involves setting a higher interest rate at a given output level, shifting the MP curve upward.

Policy Mix

Coordination of fiscal and monetary policies to achieve desired economic outcomes.

Consumer Confidence

A fall shifts the IS curve left, reducing both interest rate and output.

Money Market Equilibrium

Describes the balance between nominal money supply (M/P) and the demand for real balances (L(i, Y)).

Sticky Prices

Assumption that prices are fixed in the short run, affecting the real interest rate and output.

Price Adjustment

Explains how flexible or sluggish prices impact the influence of the money supply on the real interest rate.

Policy Rule Changes

Various scenarios like central bank actions, government purchases, and money demand affecting output.

Alternative Assumptions

Different scenarios regarding consumption, investment functions, and their impact on the economy.

Money Supply Adjustments

Describes how changes in the money supply maintain equilibrium in response to government purchases.

Real Interest Rate and Money Supply

Discusses the relationship between money supply adjustments and the real interest rate under different conditions.

Conclusion

Summarizes the IS-MP model's integration of the goods market and monetary policy to analyze economic policies and changes.