Page 188 - DECO402_Macro Economics

Unit-20: Effect of Monetary Policies Under Different Cases in IS-LM Framework

Self Assessment Notes

State whether the following statements are
True or False:
7. Because of right side shifting of LM
curve from the fall in price level, with
the higher level of GDP and lower
interest rate, a new equilibrium is
established.
8. The reduction in actual GDP or AD,
while price level remains variable on
P.
9. The slope of AD curve depends on the
slopes of IS and LM curves.
10. As there is a rise in price level, LM curve
becomes AM on being shifted.
1

20.3 Summary

y The slope of AD curve depends on
the slopes of IS and LM curves which
further depends on the interest rate, the
sensitivity of investment from the change
in interest rate, coefficient multiplier and
the sensitivity of money demand from the
change in actual GDP.

20.4 Keywords

y Aggregate – Total.
y Curve – Sinuous. Figure 20.2

20.5 Review Questions

1. Describe the derivation of Aggregate Demand Curve from IS-LM Model.
2. What happens if there is autonomous change in money supply, independent of change in
Price Level?

Answers: Self Assessment

1. left side 2. alternate technique 3. (a) 4. (b)
5. (a) 6. (b) 7. True 8. False
9. True 10. False

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