Copyright © 2006 Pearson Addison-Wesley. All rights reserved. Chapter 4 Monetary and Fiscal Policy in the IS-LM Model

Copyright © 2006 Pearson Addison-Wesley. All rights reserved.

Chapter 4

Monetary and Fiscal Policy in the IS-LM Model

Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 4-2

Table 4-1 A Simplified Version of the Fed’s Balance Sheet (All Values in $ Billions)


Figure 4-1 The Demand for Money, the Interest Rate, and Real Income


Figure 4-2 Effect on the Money Demand Schedule of a Decline in Real Income from $8,000 to $6,000 Billion


Figure 4-3 Derivation of the LM Curve


Figure 4-4 The IS and LM Schedules Cross at Last


How Monetary Policy Actually Worked in 2001–04


Figure 4-5 The Effect of a $1,000 Billion Increase in the Money Supply With a Normal LM Curve


Figure 4-6 The Effect on Real Income and the Interest Rate of a $500 Billion Increase in Government Spending


Figure 4-7 The Effect of an Increase in the Money Supply With a Normal LM Curve and a Vertical LM Curve


Figure 4-8 Effect of the Same Increase in the Real Money Supply with a Zero Interest Responsiveness of Spending and with a High Interest Responsiveness of the Demand for Money


Figure 4-9 Effect of a Fiscal Stimulus when Money Demand Has an Infinite and a Zero Interest Responsiveness


Figure 4-10 The Effect on Real Income of a Fiscal Stimulus With Three Alternative Monetary Policies (1 of 2)


Figure 4-10 The Effect on Real Income of a Fiscal Stimulus With Three Alternative Monetary Policies (2 of 2)


Figure 4-10 The Effect on Real Income of a Fiscal Stimulus With Three Alternative Monetary Policies


International Perspective Monetary and Fiscal Policy Paralysis in Japan’s “Lost Decade”


International Perspective Monetary and Fiscal Policy Paralysis in Japan’s “Lost Decade”

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Copyright © 2006 Pearson Addison-Wesley. All rights reserved. Chapter 4 Monetary and Fiscal Policy in the IS-LM Model