economicurtis's video: IS-LM Model Diagram - LM Curve Shift from a Monetary Shock Money Supply Increase

We deal with the IS-LM Model to find the effect of a monetary expansion. First, we derive the IS and LM Curves given the increase in M. This leads to a shift in the LM Curve. Then we calculate the new equilibrium interest rate (r*) and output/income (Y*). Then we use the IS-LM diagram to investigate the effect of the increase in the money supply. And we end with some intuition. More Macroeconomics Problems: https://sites.google.com/site/curtiskephart/ta/intermediate-macro-solutions ___________________________________________________________ Consider the economy of Hicksonia. Consider the economy of Hicksonia. http://youtu.be/_19w5dcGhCo?t=2m30s a. The consumption function is given by: C=200+0.75(Y-T) The investment function is: I=200-25r Government purchases and taxes are both 100. For this economy, graph the IS curve for r changing from 0 to 8 http://youtu.be/_19w5dcGhCo?t=5m30s b. The money demand function in Hicksonia is (M/P)^d=Y-100r The nominal money supply is 1000 and the price level P is 2. For this economy, graph the LM curve for r ranging from 0 to 8 http://youtu.be/_19w5dcGhCo?t=9m c. Find the equilibrium interest rate r and equilibrium level of income Y. http://youtu.be/vx6w5JFIjzw d. Suppose that government purchases are raised from 100 to 150. How does the IS curve shift? What are the new equilibrium interest rate and level of income? http://youtu.be/b28lsOUFOtw e. Suppose instead that the money supply is raised from 1000 to 1200. How does the LM curve shift? What are the new equilibrium interest rate and level of income? http://youtu.be/yBBpE8PzoKU f. With the initial values for monetary and fiscal policy, suppose that the price level rises from 2 to 4. What happens? What are the new equilibrium interest rate and level of income? http://youtu.be/5EPvwarCqDA g. Derive and graph an equation for the aggregate demand curve. What happens to this aggregate demand curve if fiscal or monetary policy changes, as in part (a) and (e)? from Mankiw's Macroeconomics (8th ed) - Aggregate Demand Part 2 (Chapter 12) - Problem 3 ----------------------------------------------------------------