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meaning in general Lernen beginnen
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the amount of something produced by a person, machine, or industry.
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a state in which opposing forces or influences are balanced. ECONOMICS a situation in which supply and demand are matched and prices stable. "the market is in equilibrium"
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equilibrium in the goods market the IS relation. Lernen beginnen
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the condition that output - Y, be equal to the demand for goods, Z. We called this condition the IS relation.
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the sum of consumption, investment, and government spending. consumption was a function of disposable income (income minus taxes)
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The level of sales (production), the interest rate. if the sales are rising, a firm needs to buy new machines, if they need a loan for it
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an increase in output leads to Lernen beginnen
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to an increase in the demand for goods through an increase on consumption and investment
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an increase in the interest rate leads to Lernen beginnen
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first in the investment then in output
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Equilibrium in the goods market implies that the IS curve Lernen beginnen
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an increase in the interest rate leads to a decrease in output
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An increase in taxes shifts the IS curve to Shifts of the IS Curve Lernen beginnen
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changes in taxes, T or government spending, G, shift the IS curve
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Assumptions of short term analysis Lernen beginnen
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peri, od: up to one year, prices are rigid („sticky"), the productive resources of the economy are not fully employed, output is determined by demand period of analysis, prices - including wages, „free resources" are available, firms produce as much as they can sell for given prices
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The IS LM model focuses on Lernen beginnen
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on the relation between the interest rate and output in the short term
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how changes in the interest rate i affect consumer expenditure Lernen beginnen
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The interes t rate determines costs of credit, affects the value of households’ wealth and the propensit y to save propensit y to save with hig h er interest it becomes more profitable to delay consumption the higher the interest rate, the lower the value of the consumer's health
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The relation between consumption an the interest rate is Lernen beginnen
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consumption function depending on income: 𝐶=𝑐0+𝑐1 (1−𝑡𝑛)𝑌 if the household doesn't have enough money to cover its need they will borrow anyway, even with the high interest rates
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Investment expenditure is ...... correlated with the interest rate how Lernen beginnen
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Effects of interest rate on investemtn Lernen beginnen
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1. The interest rate determines costs of credit and the total costs of investment 3. The interest rate determines the opportunity cost of investment lost profits that could be received e.g. from bank deposits 2. Higher interest means higher cost of credit what makes future profits more heavily discounted
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depending on the interest rate Lernen beginnen
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if interest rates 𝑖 raises investment 𝐼 falls but output Y grows
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is the value of what you lose when you choose from two or more alternatives When you invest, opportunity cost can be defined as the amount of money you might not earn by purchasing one asset instead of another.
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Government expenditure G ... on the interest rate i Lernen beginnen
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the interest rate for government loans 𝑖𝐺 may, but does not have to be equal to the market interest rate i
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Net exports NX are ........ correlated with the interest rate Lernen beginnen
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a rise in i causes the domestic currency to appreciate, lowering the economy’s international competitiveness
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depending on income and interest rate Lernen beginnen
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the higher the income the higher the imports and imports enter the NX function with a minus, and increase in interest rate would cause the net export to decrease NX= g - mY - ni
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includes all combinations of income and interest rate for which the money market is in equilibrium
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Equilibrium in the money market is described by the following Lernen beginnen
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money demand has to be equal to money supply
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in the money market the relation between the interest rate and income is... Lernen beginnen
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positive, because of the impact that income has on the money demand
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nominal supply of money divided by the level of prices of all the goods and services it is not expressed in monetary terms but in physical units like kg etc the calculation shows how many goods and services can be bought by all the money in circulation
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the impact of the level of income on interest rates Lernen beginnen
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if the level of income is higher than before intrest rate has to increase
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if the money supply increases LM function is moved to the which direction Lernen beginnen
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money supply can increase as a decision from the central bank or as a result in the change of the price level
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