Assume that people do not change the amount of currency they wish to have in circulation. When a bank finds itself with excess reserves, it lends the excess; the borrower generally uses the funds to pay a third party, who in turn deposits the
IS-LM-PC Analysis
The IS (Investment Saving), LM (Liquidity Preference- Money Supply), and PC (Philips Curve) is the model that looks at the dynamics of output and inflation. It takes into account the central bank policy decision to adjust the inflation and real interest rate in the economy. It enables the economist to weather to priorities between employment and inflation rate analyzing the model. It is a practice-driven approach adopted by economists worldwide.
IS-LM Analysis
The term IS stands for Investment, Savings, and LM stands for Liquidity Preference, Money Supply. Therefore, the term IS-LM model is known as Investment Savings – Liquidity preference money Supply. This model was introduced by a Keynesian macroeconomic theory which shows the relationship between the economic goods market and loanable funds market or money market. In other words, it shows how the market for real goods interacts with the financial markets to strike a balance between the interest rate and total output in the macroeconomy. This particular model is designed in the form of a graphical representation of the Keynesian economic theory principle. The output and money are the two important factors in an economy.
Assume that people do not change the amount of currency they wish to have in circulation. When a bank finds itself with
Paul Prospector discovers a million dollars worth of gold, and deposits it in his bank (Bank A). The
Assuming banks keep no access reserves and people who borrow money turn around the deposit all of what they receive. After all the rounds or deposits, by how much will the money supply increase? Use the Money Supply Multiplier= 1/reserve requirement
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