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    publié le 19/06/2007

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    The IS-LM model

    Document de 13 pages au format WORD

    RÉSUMÉ

    Use diagrams to illustrate the construction of the IS and LM curves, and explain what is meant by a general equilibrium in the aggregate goods and services market and the money market. Under what circumstances might fiscal policy be ineffective?

    AUTRES

    Let us first consider the goods market. In a Keynesian approach, the market is driven by demand and prices are fixed . That is to say, to the question how much to produce, the answer is that production should respond passively to aggregate demand. We have therefore - in our Keynesian line of attack - to focus on the total amount of goods and services demanded in the whole economy, that is, aggregate planned expenditure (APE). To make things a little bit more simple, we are going to assume that there is no international trade. APE is therefore equal to the sum of planned consumption expenditure (C), planned government expenditure (G) and planned investment (I). It is fundamental to note that I refers to the purchase of goods and services and not to the purchase of bonds. Exports and imports are not present, since we assume there is no foreign sector.

    13

    Docs en anglais publié le 19/06/2007

    3,60 €

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