International Economics
Download 7.1 Mb. Pdf ko'rish
|
Dominick-Salvatore-International-Economics
(X), government expenditures (G), and taxes (T) are taken to be exogenous, or independent,
of Y . With this in mind, let’s see why the IS curve is negatively sloped. The interest rate of i = 5.0% and national income of Y E = 1000 define one equilibrium point in the goods market (point E on the IS curve). The IS curve is negatively inclined because at lower interest rates, the level of investment is higher so that the level of national income will also have to be higher to induce a higher level of saving and imports to once again be equal to the higher level of investment. At that point, the nation’s goods market is once again in equilibrium. Exports, government expenditures, and taxes are not affected by the increase in the level of national income because they are exogenous. Thus, equilibrium Salvatore c18.tex V2 - 11/02/2012 7:37 A.M. Page 580 580 Open-Economy Macroeconomics: Adjustment Policies in the nation’s goods market is reestablished when I = S + M . For example, at i = 2.5%, the level of investment will be higher than at i = 5.0%, and the level of national income will have to be Y F = 1500 (the full-employment level of income) to maintain equilibrium in the goods market (point U on the IS curve). At Y < 1500 (with i = 2.5%), there is unemployment, and at Y > 1500 there is inflation. The LM curve shows the various combinations of interest rates (i) and national income (Y) at which the demand for money is equal to the given and fixed supply of money, so that the money market is in equilibrium. Money is demanded for transactions and speculative purposes. The transaction demand for money consists of the active working balances held for the purpose of making business payments as they become due. The transaction demand for money is positively related to the level of national income. That is, as the level of national income rises, the quantity demanded of active money balances increases (usually in the same proportion) because the volume of transactions is greater. The speculative demand for money arises from the desire to hold money balances instead of interest-bearing securities. The reason for the preference for money balances is to avoid the risk of falling security prices. Furthermore, money balances will allow the holder to take advantage of possible future (financial) investment opportunities. However, the higher the rate of interest, the smaller is the quantity of money demanded for speculative or liquidity purposes because the cost (interest foregone) of holding inactive money balances is greater. At i = 5.0% and Y E = 1000, the quantity of money demanded for transaction purposes plus the quantity demanded for speculative purposes equals the given supply of money so that the money market is in equilibrium (point E on the LM curve). The LM curve is positively inclined because the higher the rate of interest (i ), the smaller the quantity of money demanded for speculative purposes. The remaining larger supply of money available for transaction purposes will be held only at higher levels of national income. For example, at r = 7.0%, the level of national income will have to be Y F = 1500 (point Z on the LM curve) for the money market to remain in equilibrium. At Y < 1500 (and r = 7.0%), the demand for money falls short of the supply of money, while at Y Download 7.1 Mb. Do'stlaringiz bilan baham: |
Ma'lumotlar bazasi mualliflik huquqi bilan himoyalangan ©fayllar.org 2024
ma'muriyatiga murojaat qiling
ma'muriyatiga murojaat qiling