Macroeconomics Models Essay Example | Topics and Well Written Essays - 1500 words

Macroeconomics Models - Essay ExampleThe LM nose is acquired from the assumption that money make out is not a function of interest rates and therefore given certain levels of money provide we can determine when the pecuniary at which levels the financial sector is at sense of equilibrium the LM slide is derived as followsThe above diagram shows the derivation of the LM curve, MS represents money impart, When there is an affix in national income from Y1 to Y2 then this testament shift the money implore schedule to the right from MD1 to MD2 and for the purpose of attaining equilibrium in the money grocery store interest rates will shift from IR1 to IR2 and this relationship helps us to derive the LM curve above.A form _or_ system of government mix is the intake of both pecuniary and monetary policies, fiscal policies include the use of judicature expenditure while the monetary polices include money supply. An example is where the government reduces expenditure, this wil l shift the IS curve to the left and because and the monetary policy measure here would be to falling off interest rates from IR1 to IR2 in order to push choke off the economy to the natural rate of widening Yn.From the above diagram when the government decrease its spending this shifts the IS curve to the left from IS1 to IS2, this will lead the monetary policy makers to decrease the interest rates for this reason the new equilibrium will be at Yn and IR2.Economists escort the labour trade as any other mark... A policy mix is the use of both fiscal and monetary policies, fiscal policies include the use of government expenditure while the monetary polices include money supply. An example is where the government reduces expenditure, this will shift the IS curve to the left and because and the monetary policy measure here would be to decrease interest rates from IR1 to IR2 in order to push back the economy to the natural rate of output Yn.From the above diagram when the governme nt decrease its spending this shifts the IS curve to the left from IS1 to IS2, this will lead the monetary policy makers to decrease the interest rates for this reason the new equilibrium will be at Yn and IR2. 3. How do labour markets affect workers bargaining powerEconomists view the labour market as any other market whereby labour has its own demand and supply, when the supply of labour is high then wage rates are low and on the other cut into when the demand for labour is high then the wage rates increase. Therefore the demand and the supply will determine the equilibrium wage rates in an economy and also determine the workers bargaining power. 4. What is meant by the efficiency wage and what does it imply about the clearing of the labour market Efficiency wage is a concept that states that wage rates are not only determined by the supply and demand of labour and for this reason there is need to pay a higher wage rate to employees to increase efficiency and productivity of labo ur. This concept therefore states that wage rates should be set higher than the market clearing rate in order to achieve efficiency which is achieved through the higher pay than the market clearing.5. How does Blanchard define and motivate the