IS-LM Model – Part 01 | Goods Market Equilibrium | Derivation of IS Curve
IS-LM Model – Part 01 | Goods Market Equilibrium | Derivation of IS Curve

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Derivation of the IS:LM curves

University: City University London

Module: Introduction to Macroeconomics (EC1009)

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Derivation of the IS/LM curves

The derivation of the is curve for a closed economy

•An increase in income leads to an increase in leakages in figure (a) this needs

to be matched by an increase in injections (J) in figure (b).

•An increase in injections can occur if there is a fall in the rate of interest from

r1 to r2 in figure (c) which increases investment.

•Figures (d) shows that rate of interest at and level of national income for

which leakages and injections are equal or aggregate demand equal

aggregate supply.

d

c

b

a

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