Analisis is LM 1

Model MakroekonomiModel Makroekonomi

Analisis IS-LMAnalisis IS-LM

Kelas Agribisnis

5 Desember 2011

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Proses Penentuan Proses Penentuan Kegiatan EkonomiKegiatan Ekonomi

Pasar Barang:IS

Kebijakan FiskalInteraksi IS dan LMMenentukan suku

Bunga di kedua pasarKebijakan Moneter

Pasar Uang:LM

Penentuan KegiatanEkonomi: Y dan i pada

keseimbangan

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Analisis Equilibrium: Analisis IS dan LMAnalisis Equilibrium: Analisis IS dan LM

Asumsi:

1. Investasi swasta adalah induced (ditentukan oleh tingkat bunga)

2. Permintaan Uang ditentukan oleh 3 motif

r I AE Y

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Kurva ISKurva IS

Kombinasi antara berbagai pendapatan pada kemungkinan berbagai tingkat bunga

Kurva IS mempunyai slope miring kebawah (downward sloping)

Kemiringan dari kurva IS ditentukan oleh elastisitas tingkat bunga terhadap investasi.

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Terbentuknya kurva ISTerbentuknya kurva IS

Melalui analisis Keynesian

Melalui Investasi + G = Saving +Tax

( empat kudran)

Tingkat bunga dan ADTingkat bunga dan AD

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Need to modify the AD function of the last chapter to reflect the new planned investment spending schedule

An increase in i reduces AD for a given level of income At any given level of i, can determine the equilibrium level of

income and output as in Chapter 9 A change in i will change the equilibrium

biYtcA

XNGbiIYtcRTcC

NXGICAD

)1(

)()1(

The Interest Rate and AD: The IS CurveThe Interest Rate and AD: The IS Curve

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(2) Derive the IS curve using figure 10-5 For a given interest rate, i1,

the last term in equation (2) is constant can draw the AD function with an intercept of

The equilibrium level of income is Y1 at point E1

Plot the pair (i1, Y1) in the bottom panel as point E1 a point on the IS curve

Combination of i and Y that clears the goods market

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(2)

Derive the IS curve using figure 10-5 Consider a lower interest rate, i2

Shifts the AD curve upward to AD’ with an intercept of

Given the increase in AD, the equilibrium shifts to point E2, with an associated income level of Y2

Plot the pair (i2, Y2) in panel (b) for another point on the IS curve

biYtcAAD )1(

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We can also derive the IS curve using the goods market equilibrium condition:

(4)

(5)

where , the multiplier

)(

))1(1(

)1(

)1(

biAY

biAtcY

biAYtcY

biYtcAADY

G

))1(1(

1

tcG

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Bentuk Kurva ISBentuk Kurva IS

IS

i

Y

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Pergeseran Kurva ISPergeseran Kurva IS

Pergeseran komponen-komponen AD

Ketika komponen AD (C,I,X-m) bergeser ke atas maka kurva IS bergerak ke kanan atas dan sebaliknya

Pergeseran kebijakan fiskal pemerintah

Ketika ekspansi kebijakan fiskal (pengeluaran pemerintah) menyebabkan kurva IS bergeser ke kanan atas dan sebaliknya.

Dampak pergeseran terhadap keseimbangan pendapatan tergantung pada besarnya dampak multiplier yang tercipta

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The intersection determines the unique combination of Y and r that satisfies equilibrium in both markets.

The LM curve represents money market equilibrium.

Equilibrium in the Equilibrium in the ISIS--LMLM ModelModel

The IS curve represents equilibrium in the goods market.

( ) ( )Y C Y T I r G

( , )M P L r Y ISY

rLM

r1

Y1

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Policy analysis with the Policy analysis with the ISIS--LMLM Model Model

Policymakers can affect macroeconomic variables with • fiscal policy: G and/or

T• monetary policy: M

We can use the IS-LM model to analyze the effects of these policies.

( ) ( )Y C Y T I r G

( , )M P L r Y

ISY

rLM

r1

Y1

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causing output & income to rise.

IS1

An increase in government purchasesAn increase in government purchases

1. IS curve shifts right

Y

rLM

r1

Y1

1by

1 MPCG

IS2

Y2

r2

1.2. This raises money

demand, causing the interest rate to rise…

2.

3. …which reduces investment, so the final increase in Y 1is smaller than

1 MPCG

3.

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IS1

1.

A tax cutA tax cut

Y

rLM

r1

Y1

IS2

Y2

r2

Because consumers save (1MPC) of the tax cut, the initial boost in spending is smaller for T than for an equal G…

and the IS curve shifts by MPC

1 MPCT

1.

2.

2.…so the effects on r and Y are smaller for a T than for an equal G.

2.

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2. …causing the interest rate to fall

IS

Monetary Policy: an increase in Monetary Policy: an increase in MM

1. M > 0 shifts the LM curve down(or to the right)

Y

r LM1

r1

Y1 Y2

r2

LM2

3. …which increases investment, causing output & income to rise.

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Interaction between Interaction between monetary & fiscal policymonetary & fiscal policy

Model: monetary & fiscal policy variables (M, G and T ) are exogenous

Real world: Monetary policymakers may adjust M in response to changes in fiscal policy, or vice versa.

Such interaction may alter the impact of the original policy change.

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The Fed’s response to The Fed’s response to GG > 0 > 0

Suppose Congress increases G.

Possible Fed responses:1. hold M constant2. hold r constant3. hold Y constant

In each case, the effects of the G are different:

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If Congress raises G,

the IS curve shifts right

IS1

Response 1: hold Response 1: hold MM constant constant

Y

rLM1

r1

Y1

IS2

Y2

r2If Fed holds M constant, then LM curve doesn’t shift.

Results:2 1Y Y Y

2 1r r r

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If Congress raises G,

the IS curve shifts right

IS1

Response 2: hold Response 2: hold rr constant constant

Y

rLM1

r1

Y1

IS2

Y2

r2To keep r constant, Fed increases M to shift LM curve right.

3 1Y Y Y

0r

LM2

Y3

Results:

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If Congress raises G,

the IS curve shifts right

IS1

Response 3: hold Response 3: hold YY constant constant

Y

rLM1

r1

IS2

Y2

r2To keep Y constant, Fed reduces M to shift LM curve left.

0Y

3 1r r r

LM2

Results:

Y1

r3

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Shocks in the Shocks in the ISIS--LMLM Model Model

IS shocks: exogenous changes in the demand for goods & services.

Examples: • stock market boom or crash

change in households’ wealth C

• change in business or consumer confidence or expectations I and/or C

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Shocks in the Shocks in the ISIS--LMLM Model Model

LM shocks: exogenous changes in the demand for money.

Examples:• a wave of credit card fraud increases

demand for money• more ATMs or the Internet reduce

money demand

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IS-LM and Aggregate DemandIS-LM and Aggregate Demand

So far, we’ve been using the IS-LM

model to analyze the short run, when the price level is assumed fixed.

However, a change in P would shift the LM curve and therefore affect Y.

The aggregate demand curve (introduced in chap. 9 ) captures this relationship between P and Y

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Y1Y2

Deriving the Deriving the ADAD curve curve

Y

r

Y

P

IS

LM(P1)

LM(P2)

AD

P1

P2

Y2 Y1

r2

r1

Intuition for slope of AD curve:

P (M/P )

LM shifts left

r

I

Y

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Monetary policy and the Monetary policy and the ADAD curve curve

Y

P

IS

LM(M2/P1)

LM(M1/P1)

AD1

P1

Y1

Y1

Y2

Y2

r1

r2

The Fed can increase aggregate demand:

M LM shifts right

AD2

Y

r

r

I

Y at each value of P

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Y2

Y2

r2

Y1

Y1

r1

Fiscal policy and the Fiscal policy and the ADAD curve curve

Y

r

Y

P

IS1

LM

AD1

P1

Expansionary fiscal policy (G and/or T ) increases agg. demand:

T C

IS shifts right

Y at each value

of PAD2

IS2

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IS-LMIS-LM and and AD-AS AD-AS in the short run & long runin the short run & long run

Recall from Chapter 9: The force that moves the economy from the short run to the long run is the gradual adjustment of prices.

Y Y

Y Y

Y Y

rise

fall

remain constant

In the short-run equilibrium, if

then over time, the price level

will

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The SR and LR effects of an The SR and LR effects of an ISIS shock shock

A negative IS shock shifts IS and AD left, causing Y to fall. Y

r

Y

P LRAS

Y

LRAS

Y

IS1

SRAS1P1

LM(P1)

IS2

AD2

AD1

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The SR and LR effects of an The SR and LR effects of an ISIS shock shock

Y

r

Y

P LRAS

Y

LRAS

Y

IS1

SRAS1P1

LM(P1)

IS2

AD2

AD1

In the new short-run equilibrium, Y Y

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The SR and LR effects of an The SR and LR effects of an ISIS shock shock

Y

r

Y

P LRAS

Y

LRAS

Y

IS1

SRAS1P1

LM(P1)

IS2

AD2

AD1

In the new short-run equilibrium, Y Y

Over time, P gradually falls, which causes• SRAS to move

down• M/P to increase,

which causes LM to move down

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AD2

The SR and LR effects of an The SR and LR effects of an ISIS shock shock

Y

r

Y

P LRAS

Y

LRAS

Y

IS1

SRAS1P1

LM(P1)

IS2

AD1

Over time, P gradually falls, which causes• SRAS to move

down• M/P to increase,

which causes LM to move down

SRAS2P2

LM(P2)

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AD2

SRAS2P2

LM(P2)

The SR and LR effects of an The SR and LR effects of an ISIS shock shock

Y

r

Y

P LRAS

Y

LRAS

Y

IS1

SRAS1P1

LM(P1)

IS2

AD1

This process continues until economy reaches a long-run equilibrium with

Y Y

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Efektifitas Kebijakan FiskalEfektifitas Kebijakan Fiskal

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Efektifitas Kebijakan FiskalEfektifitas Kebijakan Fiskal

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Efektifitas Kebijakan MoneterEfektifitas Kebijakan Moneter

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Efektifitas Kebijakan MoneterEfektifitas Kebijakan Moneter