Macroeconomics Assignment

Running Head : Macroeconomics Assignment

Macroeconomics Assignment : Essay

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Equilibrium GDP is determined by two essential economic curves : the IS and LM curves . The IS curves is referred to as the good market ' or the movement along the IS curve is solely determined by price . A shift parallel to GDP is determined by other factors such as technological breakthrough , season , prices of substitutes and complements , etc . The intersection of the two curves determines the equilibrium income refer to the figure below .

IS1

IS

P1 p

P

LM1

LM

Y Yn GDPP GDPp2 Y (GDP ) Equilibrium income is the given time period . Y is the equilibrium income given

or more accurately the intersection of IS and LM curves . The shift of the IS curve is due primarily to the advancement of technology . Given that a fixed amount of capital and labor , the economy now can potentially produce at the higher aggregate quantity . Consequently , the LM curve also shifts to the right . The potential supply of money circulating in an economy increases

Implications : increase in price , inflation increases , interest rate decreases , consumption increases , public and private savings decreases investment decreases /fixed , public expenditure increases , real wage increases and equilibrium income approaches potential GDP

Supposing that the economy experiences a trade deficit (value of exports is less than the value of imports , GDP decreases proportionally assuming that...