Is-LM curve was explained by?

Teaches Economics and Society. The IS-LM model is a way to explain and distill the economic ideas put forth by John Maynard Keynes in the 1930s. The model was developed by the economist John Hicks in 1937, after Keynes published his magnum opus The General Theory of Employment, Interest and Money (1936).

IS and LM curve equilibrium?

The IS-LM (Investment Savings-Liquidity preference Money supply) model focuses on the equilibrium of the market for goods and services, and the money market. It basically shows the relationship between real output and interest rates. Then, the LM curve, which represents the equilibrium in the money market.

What is L and M in LM curve?

The LM curve, “L” denotes Liquidity and “M” denotes money, is a graph of combinations of real income, Y, and the real interest rate, r, such that the money market is in equilibrium (i.e. real money supply = real money demand).

IS and LM curve equation?

Algebraically, we have an equation for the LM curve: r = (1/L 2) [L 0 + L 1Y – M/P]. r = (1/L 2) [L 0 + L 1 m(e 0-e 1r) – M/P]. r = A r – B rM/P.

Is-LM curve properties?

Properties of the LM Curve: Summary: (i) The LM curve consists of equilibrium combinations of income and interest rate for the money market. (ii) The LM curve slopes upward to the right. (iii) The slope of the LM curve depends on the interest elasticity of money demand.

How LM curve is derived?

The LM curve can be derived from the Keynesian theory from its analysis of money market equilibrium. The greater the level of income, the greater the amount of money held for transactions motive and therefore higher the level of money demand curve.

Is-LM general equilibrium?

– the FE line along with the labour market is in equilibrium; – the IS curve, along with the goods market is in equilibrium; – the LM curve, along with the asset market is in equilibrium. The general equilibrium of the economy always occurs at the intersection of the IS curve and the FE line.

What shifts the LM curve?

The LM curve, the equilibrium points in the market for money, shifts for two reasons: changes in money demand and changes in the money supply. If the money supply increases (decreases), ceteris paribus, the interest rate is lower (higher) at each level of Y, or in other words, the LM curve shifts right (left).

What makes the LM curve flatter?

The LM-curve becomes flatter as money supply becomes interest sensitive. Any increase in income will lead to an increase in money demand, which will drive up the interest rate.

Why does the LM curve slope upward?

The LM curve is upward sloping: given the money supply and the bond supply, an increase in the national income and product raises the interest rate. The excess supply of bonds forces the bond price down and hence the interest rate up. Thus the new equilibrium interest rate must be higher.

Is LM elasticity of is LM curve?

The LM curve is a set of points from the Money Market for a given demand for money (liquidity preferences) and a supply of money. The key to the elasticity of LM is the interest elasticity of money. The more responsive money demand is to the interest rate, the more elastic is the LM curve.

Is LM curve properties?