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IS-LM Model
Written Assignment Unit 7: IS-LM Model
University of the People
BUS 2203: PRINCIPLES OF FINANCE 1
Jennifer Harris (Instructor)
March 13, 2021
Introduction
The IS-LM model, which stands for "investment-savings" (IS) and "liquidity preference-money
supply" (LM) is a Keynesian macroeconomic model that suggests how the market for financial
items (IS) interacts with the loanable funds market (LM) or cash market. It is represented as a
diagram in which the IS and LM curves intersect to exhibit the short-run equilibrium between
interest quotes and output (Staff, 2020).
The IS-LM graph is made up of two curves in which the gross home product(Y) is positioned on
the horizontal axis, rising to the right side, the fee of interest (I or R), is on the vertical axis. The
IS curve indicates various tiers of output and costs of interest(GDP) whereby complete
investment (I)equal to total saving (S). When fees of interest are low, funding will increase which
symbolizes the whole output(GDP), as a consequence the IS curve goes down and then to the
proper (Staff, 2020).

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IS-LM Model
The LM curve expresses various units of all income levels(GDP) and the charges of interest at
which the furnish of money is equal to cash requested. The LM curve goes upwards due to the
fact, higher costs of income(GDP) injects higher request to preserve cash balance for
transactions, which demands a larger charge of interest to shield cash provide and request for
liquidity in equilibrium (Staff, 2020).
a)
The factor at which the IS and LM curves meet expresses an equilibrium location between prices
of interest and output whereby the actual economy and money markets are equally balanced. -
This model is disadvantageous in that; it is a constrained tool of policy because it cannot describe
how tax or insurance policies of spending have to be specifically configured. This model is
equally ignorant about labor productiveness and capital (Staff, 2020). The IS-LM characteristic
depicts a relationship between the real output and the interest fees in cash markets and services
and goods market
The IS curve basically is defined by the equation:
Y=C + I + G + NX
Using the information given:
Y = 100 + 0.5Y + 100 - 20r - 80
Y - 0.5Y= 100 +100 - 80 - 20r

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IS-LM Model Written Assignment Unit 7: IS-LM Model University of the People BUS 2203: PRINCIPLES OF FINANCE 1 Jennifer Harris (Instructor) March 13, 2021 Introduction The IS-LM model, which stands for "investment-savings" (IS) and "liquidity preference-money supply" (LM) is a Keynesian macroeconomic model that suggests how the market for financial items (IS) interacts with the loanable funds market (LM) or cash market. It is represented as a diagram in which the IS and LM curves intersect to exhibit the short-run equilibrium between interest quotes and output (Staff, 2020). The IS-LM graph is made up of two curves in which the gross home product(Y) is positioned on the horizontal axis, rising to the right side, the fee of interest (I or R), is on the vertical axis. The IS curve indicates various tiers of output and costs of interest(GDP) whereby complete investment (I)equal to total saving (S). When fees of interest are low, funding will increase which symbolizes the whole output(GDP), as a consequence the IS curve goes down and then to the proper (Staff, 2020). IS-LM Model The LM curve expresses various units of all income levels(GDP) and the charges of interest at which the furnish of money is equal to cash requested. The LM curve goes upwards due to the fact, higher costs of income(GDP) injects higher request to preserve cash balance for transactions, which demands a larger charge of interest to shield cash provide and request for liquidity in equilibrium (Staff, 2020 ...
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