I need help!!
I got this question:
Derive the IS/LM-model from the 45-degree model and the money market...
Ideas...help anything!
Thank you for using the Jiskha Homework Help Forum. Since you ask for "anything" here are some things I found re: IS/LM:
http://www.egwald.com/macroeconomics/basicislm.php
http://www.econport.org/econport/request?page=web_or_list&typeID=2
sten.net/ENT3000.pdf
To derive the IS/LM model from the 45-degree model and the money market, you will need to understand the concepts behind each of these models.
The 45-degree model, also known as the Keynesian cross, represents the equilibrium level of income in an economy. It shows the relationship between aggregate income and aggregate spending. The line represents total spending, and the 45-degree line represents total income. The point where the two lines intersect is the equilibrium level of income.
The money market model focuses on the relationship between money supply and money demand. It shows how changes in the interest rate affect the demand for money and the supply of money.
To derive the IS/LM model, you need to combine these two models. The IS curve represents the equilibrium level of income in the goods market, and the LM curve represents the equilibrium level of the money market. The IS curve is derived from the 45-degree model, and the LM curve is derived from the money market model.
The IS curve represents the relationship between output (Y) and the interest rate (r). It shows the combinations of output and interest rate at which spending equals income. It is derived by combining the savings-investment identity with the goods market equilibrium condition.
The LM curve represents the relationship between output (Y) and the interest rate (r). It shows the combinations of output and interest rate at which the money market is in equilibrium. It is derived by equating the supply and demand for money.
By combining the IS curve and the LM curve, you get the IS/LM model, which shows the general equilibrium in the goods and money markets. This model is used to analyze the effects of fiscal and monetary policy on output and interest rates.
To further understand the derivation and application of the IS/LM model, I recommend referring to the sources you provided:
1. http://www.egwald.com/macroeconomics/basicislm.php
2. http://www.econport.org/econport/request?page=web_or_list&typeID=2
3. sten.net/ENT3000.pdf
These sources should provide you with detailed explanations and examples that can aid your understanding of the IS/LM model.