# Shared Flashcard Set

## Details

Macroeconomics
Goods Market, Money Market, and IS/LM model
12
Economics
03/16/2011

Term
 Reserve Rate Equation
Definition
 Change in Deposits = Change in Reserves = 1/rr
Term
 Money Multiplier Equation
Definition
 m=C+D/C+RC+D=Money SupplyC+R=Monetary Base
Term
 Money Demand Formula
Definition
 Md=L0-L1(inlfation exp.)+L2(Y)-L3(r)
Term
 Interest Rate Formula (from Money Demand)
Definition
 r=[L0-L1(inflation exp.)+L2(Y)-MD]/L3
Term
 Reasons for holding more money
Definition
 stock market gets riskierbond prices increaseinterest rate decreasesincome increases
Term
 effects of holding more money
Definition
 Money demand shifts right, so...interest rate increasesbond prices dropLM curve shifts left
Term
 Effects of increase in money supply
Definition
 Interest rates dropLM shifts down and to the right
Term
 Derive the LM curve
Definition
 Draw money market graph. r is y axis and m is x axis. MS is vertical and MD is downward sloping. When MD increases (from increase in income or whatever) so does r. To the right of this graph put the LM graph with r as y axis and Y as x axis. Slope of upward sloping LM curve is L2(income elasticity) over L3 (interest rate elasticity)
Term
 If L3 is small...
Definition
 inelastic, steep MD curve and LM curve. takes a big increase in r to get to equilibrium.
Term
 If L3 is big...
Definition
 elastic, flat MD and LM curve. takes small change in r to get to equilibrium.
Term
 Classical vs Keynes on elasticity
Definition
 Classical: L3=0(perfectly inelastic/steep)Keynes: L3=infinity(perfectly elastic/flat);liquidity trap
Term
 LM curve shifts
Definition
 Increase in MS: Down on LM curve
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