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Figure 1
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26
A IS/LM Model Parameters a b e d g m n k h Policy variables G Tf t M Price level P Solution T C I G X Y (IS) R (LM)
B
220 0.9 1000 2000 525 0.1 500 0.16 1000 1200 0 0.3 900 1.0 1800.2 4000.4 900.2 1200.0 -100.0 6000.6 5.0%
Page 1
Notes A2:
Parameter values are chosen exogenously
A3:
Intercept of consumption function
A4:
Marginal propensity to consume
A5:
Intercept of investment function
A6:
Sensitivity of investment to interest rates
A7:
Intercept of net export function
A8:
Marginal propensity to import
A9:
Sensitivity of net exports to interest rates
A10:
Income sensitivity of money demand
A11:
Interest sensitivity of money demand
A12:
Chosen exogenously
A13:
Government purchases
A14:
Lump-sum taxes
A15:
Income tax rate
A16:
Nominal money supply
A17:
Chosen exogenously and fixed
A18:
Price level
A19:
The solution requires solving several equations simultaneously. Turn on Tools/Options/Calculation/Iteration
A20:
=Tf + tY
A21:
=a + b (Y-T)
A22:
=e-dR
A23:
=G
A24:
=g - mY - nR
A25:
IS curve: = C + I + G + X
A26:
LM curve: = (k/h)Y - (1/h)(M/P)
Page 2
12.0% 11.5% 11.0% 10.5% 10.0% 9.5% 9.0% 8.5% 8.0%
Interest Rate
7.5% 7.0% 6.5% 6.0% 5.5% 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 5700.0
5750.0
5800.0
5850.0
5900.0
5950.0
6000.0 Real GDP
6050.0
6100.0
6150.0
6200.0
6250.0
6300.0
0.0
6300.0
Spreadsheet for Figure 2
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27
A IS/LM Model Parameters a b e d g m n k h Policy Variables G Tf t M Price level P Solution T C I G X Y (IS) Given R LM (R)
B
C
D
E
F
G
H
I
J
K
L
M
N
O
P
Q
220 0.9 1000 2000 525 0.1 500 0.16 1000
220 0.9 1000 2000 525 0.1 500 0.16 1000
220 0.9 1000 2000 525 0.1 500 0.16 1000
220 0.9 1000 2000 525 0.1 500 0.16 1000
220 0.9 1000 2000 525 0.1 500 0.16 1000
220 0.9 1000 2000 525 0.1 500 0.16 1000
220 0.9 1000 2000 525 0.1 500 0.16 1000
220 0.9 1000 2000 525 0.1 500 0.16 1000
220 0.9 1000 2000 525 0.1 500 0.16 1000
220 0.9 1000 2000 525 0.1 500 0.16 1000
220 0.9 1000 2000 525 0.1 500 0.16 1000
220 0.9 1000 2000 525 0.1 500 0.16 1000
220 0.9 1000 2000 525 0.1 500 0.16 1000
220 0.9 1000 2000 525 0.1 500 0.16 1000
220 0.9 1000 2000 525 0.1 500 0.16 1000
220 0.9 1000 2000 525 0.1 500 0.16 1000
1200 0 0.3 900
1200 0 0.3 900
1200 0 0.3 900
1200 0 0.3 900
1200 0 0.3 900
1200 0 0.3 900
1200 0 0.3 900
1200 0 0.3 900
1200 0 0.3 900
1200 0 0.3 900
1200 0 0.3 900
1200 0 0.3 900
1200 0 0.3 900
1200 0 0.3 900
1200 0 0.3 900
1200 0 0.3 900
1.0
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1879.8 4167.6 1000.0 1200.0 -101.6 6266.0 0.0% 9.2%
1863.8 4134.0 980.0 1200.0 -101.3 6212.8 1.0% 8.3%
1847.9 4100.5 960.0 1200.0 -101.0 6159.6 2.0% 7.5%
1831.9 4067.0 940.0 1200.0 -100.6 6106.4 3.0% 6.7%
1816.0 4033.5 920.0 1200.0 -100.3 6053.2 4.0% 5.8%
1800.0 4000.0 900.0 1200.0 -100.0 6000.0 5.0% 5.0%
1784.0 3966.5 880.0 1200.0 -99.7 5946.8 6.0% 4.1%
1768.1 3933.0 860.0 1200.0 -99.4 5893.6 7.0% 3.3%
1752.1 3899.5 840.0 1200.0 -99.0 5840.4 8.0% 2.5%
1736.2 3866.0 820.0 1200.0 -98.7 5787.2 9.0% 1.6%
1720.2 3832.4 800.0 1200.0 -98.4 5734.0 10.0% 0.8%
1704.3 3798.9 780.0 1200.0 -98.1 5680.9 11.0% -0.1%
1688.3 3765.4 760.0 1200.0 -97.8 5627.7 12.0% -0.9%
1672.3 3731.9 740.0 1200.0 -97.4 5574.5 13.0% -1.8%
1656.4 3698.4 720.0 1200.0 -97.1 5521.3 14.0% -2.6%
1640.4 3664.9 700.0 1200.0 -96.8 5468.1 15.0% -3.4%
Page 5
Notes B25:
Plotting the gray shaded cells with an XY scatter plot (row 25 being the X values) yields the IS-LM graph.
A26:
This row was inserted, and a range of interest rates typed in. The equations for I and X should refer to this row instead of the original LM row, which has been shifted one row down.
A27:
The LM equation is unchanged; it still refers to the Y (IS) row 25 for its Y values
Page 6
Figure 3
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
A AD Curve Parameters a b e d g m n k h Policy variables G Tf t M Solution T C I G X Y (IS) R (LM) P
B
C
D
E
F
G
H
I
J
K
L
M
N
O
P
Q
R
220 0.9 1000 2000 525 0.1 500 0.16 1000
220 0.9 1000 2000 525 0.1 500 0.16 1000
220 0.9 1000 2000 525 0.1 500 0.16 1000
220 0.9 1000 2000 525 0.1 500 0.16 1000
220 0.9 1000 2000 525 0.1 500 0.16 1000
220 0.9 1000 2000 525 0.1 500 0.16 1000
220 0.9 1000 2000 525 0.1 500 0.16 1000
220 0.9 1000 2000 525 0.1 500 0.16 1000
220 0.9 1000 2000 525 0.1 500 0.16 1000
220 0.9 1000 2000 525 0.1 500 0.16 1000
220 0.9 1000 2000 525 0.1 500 0.16 1000
220 0.9 1000 2000 525 0.1 500 0.16 1000
220 0.9 1000 2000 525 0.1 500 0.16 1000
220 0.9 1000 2000 525 0.1 500 0.16 1000
220 0.9 1000 2000 525 0.1 500 0.16 1000
220 0.9 1000 2000 525 0.1 500 0.16 1000
220 0.9 1000 2000 525 0.1 500 0.16 1000
1200 0 0.3 900
1200 0 0.3 900
1200 0 0.3 900
1200 0 0.3 900
1200 0 0.3 900
1200 0 0.3 900
1200 0 0.3 900
1200 0 0.3 900
1200 0 0.3 900
1200 0 0.3 900
1200 0 0.3 900
1200 0 0.3 900
1200 0 0.3 900
1200 0 0.3 900
1200 0 0.3 900
1200 0 0.3 900
1200 0 0.3 900
1692.6 3774.5 765.4 1200.0 -97.9 5642.1 11.7% 1.16
1698.5 3786.8 772.8 1200.0 -98.0 5661.6 11.4% 1.15
1704.4 3799.3 780.2 1200.0 -98.1 5681.4 11.0% 1.14
1710.5 3812.0 787.8 1200.0 -98.2 5701.6 10.6% 1.13
1716.6 3824.9 795.5 1200.0 -98.3 5722.1 10.2% 1.12
1722.9 3838.1 803.4 1200.0 -98.5 5743.0 9.8% 1.11
1729.3 3851.5 811.4 1200.0 -98.6 5764.3 9.4% 1.10
1735.8 3865.2 819.5 1200.0 -98.7 5786.0 9.0% 1.09
1742.4 3879.1 827.8 1200.0 -98.8 5808.1 8.6% 1.08
1749.2 3893.3 836.3 1200.0 -99.0 5830.6 8.2% 1.07
1756.0 3907.7 844.9 1200.0 -99.1 5853.5 7.8% 1.06
1763.0 3922.4 853.7 1200.0 -99.3 5876.8 7.3% 1.05
1770.2 3937.4 862.6 1200.0 -99.4 5900.6 6.9% 1.04
1777.5 3952.7 871.8 1200.0 -99.5 5924.9 6.4% 1.03
1784.9 3968.3 881.1 1200.0 -99.7 5949.6 5.9% 1.02
1792.5 3984.2 890.5 1200.0 -99.8 5974.8 5.5% 1.01
1800.2 4000.4 900.2 1200.0 -100.0 6000.6 5.0% 1.00
Page 7
Notes A1:
The AD curve plots the equilibrium GDP in the IS-LM model against different price levels. Thus, the IS-LM model was copied to several columns. The price level row was moved to the bottom, and different values for the price level are given for each column.
B23:
Charting an XY scatter plot of the shaded cells yields the AD curve plot
A25:
A range of values for the price level are entered into columns B - R
Page 8
AD curve plot 1.16 1.15 1.14 1.13 1.12 1.11 1.10 Price Level
1.09 1.08 1.07 1.06 1.05 1.04 1.03 1.02 1.01 1.00 0.99 5625.0 5650.0 5675.0 5700.0 5725.0 5750.0 5775.0 5800.0 5825.0 5850.0 5875.0 5900.0 5925.0 5950.0 5975.0 6000.0 6025.0 Real GDP
000.0 6025.0
Figure 4
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34
A AS-AD Model Parameters a b e d g m n k h s f Policy variables G Tf t mgth M Solution Yp infl T C I G X Y R P Time Other variables Unempl GDP gap
B
C
D
E
F
G
H
I
J
K
L
M
N
O
P
Q
R
S
T
U
V
W
X
Y
Z
AA
220 0.9 1000 2000 525 0.1 500 0.16 1000 0.5 1.2
220 0.9 1000 2000 525 0.1 500 0.16 1000 0.5 1.2
220 0.9 1000 2000 525 0.1 500 0.16 1000 0.5 1.2
220 0.9 1000 2000 525 0.1 500 0.16 1000 0.5 1.2
220 0.9 1000 2000 525 0.1 500 0.16 1000 0.5 1.2
220 0.9 1000 2000 525 0.1 500 0.16 1000 0.5 1.2
220 0.9 1000 2000 525 0.1 500 0.16 1000 0.5 1.2
220 0.9 1000 2000 525 0.1 500 0.16 1000 0.5 1.2
220 0.9 1000 2000 525 0.1 500 0.16 1000 0.5 1.2
220 0.9 1000 2000 525 0.1 500 0.16 1000 0.5 1.2
220 0.9 1000 2000 525 0.1 500 0.16 1000 0.5 1.2
220 0.9 1000 2000 525 0.1 500 0.16 1000 0.5 1.2
220 0.9 1000 2000 525 0.1 500 0.16 1000 0.5 1.2
220 0.9 1000 2000 525 0.1 500 0.16 1000 0.5 1.2
220 0.9 1000 2000 525 0.1 500 0.16 1000 0.5 1.2
220 0.9 1000 2000 525 0.1 500 0.16 1000 0.5 1.2
220 0.9 1000 2000 525 0.1 500 0.16 1000 0.5 1.2
220 0.9 1000 2000 525 0.1 500 0.16 1000 0.5 1.2
220 0.9 1000 2000 525 0.1 500 0.16 1000 0.5 1.2
220 0.9 1000 2000 525 0.1 500 0.16 1000 0.5 1.2
220 0.9 1000 2000 525 0.1 500 0.16 1000 0.5 1.2
220 0.9 1000 2000 525 0.1 500 0.16 1000 0.5 1.2
220 0.9 1000 2000 525 0.1 500 0.16 1000 0.5 1.2
220 0.9 1000 2000 525 0.1 500 0.16 1000 0.5 1.2
220 0.9 1000 2000 525 0.1 500 0.16 1000 0.5 1.2
220 0.9 1000 2000 525 0.1 500 0.16 1000 0.5 1.2
1200 0 0.3 0.0% 900
1400 0 0.3 0.0% 900
1200 0 0.3 0.0% 900
1200 0 0.3 0.0% 900
1200 0 0.3 0.0% 900
1200 0 0.3 0.0% 900
1200 0 0.3 0.0% 900
1200 0 0.3 0.0% 900
1200 0 0.3 0.0% 900
1200 0 0.3 0.0% 900
1200 0 0.3 0.0% 900
1200 0 0.3 0.0% 900
1200 0 0.3 0.0% 900
1200 0 0.3 0.0% 900
1200 0 0.3 0.0% 900
1200 0 0.3 0.0% 900
1200 0 0.3 0.0% 900
1200 0 0.3 0.0% 900
1200 0 0.3 0.0% 900
1200 0 0.3 0.0% 900
1200 0 0.3 0.0% 900
1200 0 0.3 0.0% 900
1200 0 0.3 0.0% 900
1200 0 0.3 0.0% 900
1200 0 0.3 0.0% 900
1200 0 0.3 0.0% 900
6000.6 0.0% 1800.2 4000.4 900.2 1200.0 -100.0 6000.6 5.0% 1.00 0
6000.6 0.0% 1869.5 4145.9 827.1 1400.0 -141.4 6231.6 8.6% 1.00 1
6000.6 4.6% 1765.7 3928.1 857.1 1200.0 -99.3 5885.8 7.1% 1.05 2
6000.6 0.0% 1765.6 3927.8 856.9 1200.0 -99.3 5885.4 7.2% 1.05 3
6000.6 -2.3% 1783.1 3964.6 878.9 1200.0 -99.7 5943.8 6.1% 1.02 4
6000.6 -2.3% 1801.0 4002.0 901.2 1200.0 -100.0 6003.2 4.9% 1.00 5
6000.6 -1.1% 1809.6 4020.1 912.0 1200.0 -100.2 6031.8 4.4% 0.99 6
6000.6 0.1% 1808.9 4018.7 911.2 1200.0 -100.2 6029.7 4.4% 0.99 7
6000.6 0.6% 1804.0 4008.5 905.1 1200.0 -100.1 6013.5 4.7% 1.00 8
6000.6 0.6% 1799.6 3999.2 899.5 1200.0 -100.0 5998.7 5.0% 1.00 9
6000.6 0.2% 1797.7 3995.1 897.1 1200.0 -100.0 5992.3 5.1% 1.00 10
6000.6 0.0% 1798.0 3995.8 897.5 1200.0 -100.0 5993.4 5.1% 1.00 11
6000.6 -0.2% 1799.3 3998.5 899.1 1200.0 -100.0 5997.7 5.0% 1.00 12
6000.6 -0.1% 1800.4 4000.8 900.5 1200.0 -100.0 6001.3 5.0% 1.00 13
6000.6 -0.1% 1800.8 4001.7 901.0 1200.0 -100.0 6002.8 4.9% 1.00 14
6000.6 0.0% 1800.7 4001.5 900.9 1200.0 -100.0 6002.3 5.0% 1.00 15
6000.6 0.0% 1800.4 4000.8 900.5 1200.0 -100.0 6001.2 5.0% 1.00 16
6000.6 0.0% 1800.1 4000.2 900.1 1200.0 -100.0 6000.3 5.0% 1.00 17
6000.6 0.0% 1800.0 4000.0 900.0 1200.0 -100.0 6000.0 5.0% 1.00 18
6000.6 0.0% 1800.0 4000.1 900.1 1200.0 -100.0 6000.1 5.0% 1.00 19
6000.6 0.0% 1800.1 4000.3 900.2 1200.0 -100.0 6000.4 5.0% 1.00 20
6000.6 0.0% 1800.2 4000.4 900.2 1200.0 -100.0 6000.7 5.0% 1.00 21
6000.6 0.0% 1800.2 4000.5 900.3 1200.0 -100.0 6000.7 5.0% 1.00 22
6000.6 0.0% 1800.2 4000.4 900.3 1200.0 -100.0 6000.7 5.0% 1.00 23
6000.6 0.0% 1800.2 4000.4 900.2 1200.0 -100.0 6000.6 5.0% 1.00 24
6000.6 0.0% 1800.2 4000.3 900.2 1200.0 -100.0 6000.6 5.0% 1.00 25
4.50% 0.00%
-7.05% 3.85%
10.24% -1.91%
10.26% -1.92%
7.34% -0.95%
4.37% 0.04%
2.94% 0.52%
3.04% 0.49%
3.86% 0.21%
4.60% -0.03%
4.91% -0.14%
4.86% -0.12%
4.65% -0.05%
4.46% 0.01%
4.39% 0.04%
4.41% 0.03%
4.47% 0.01%
4.51% 0.00%
4.53% -0.01%
4.52% -0.01%
4.51% 0.00%
4.50% 0.00%
4.49% 0.00%
4.49% 0.00%
4.50% 0.00%
4.50% 0.00%
Page 11
Notes A2:
Parameter values are chosen exogenously
A3:
Intercept of consumption function
A4:
Marginal propensity to consume
A5:
Intercept of investment function
A6:
Sensitivity of investment to interest rates
A7:
Intercept of net export function
A8:
Marginal propensity to import
A9:
Sensitivity of net exports to interest rates
A10:
Income sensitivity of money demand
A11:
Interest sensitivity of money demand
A12:
Persistence of inflation parameter; the fraction of the previous period's inflation that is expected the current period
A13:
Sensitivity of inflation to market conditions (i. e. distance from potential GDP)
A14:
Chosen exogenously
A15:
Government purchases
C15:
Government purchases increases by 200 this period...
D15:
…but returns to 1200 this period
A16:
Lump-sum taxes
A17:
Income tax rate
A18:
The growth rate of the money supply
A19:
Nominal money supply: - predetermined in initial period - determined by mgth in subsequent periods
A20:
The solution requires solving several equations simultaneously. Turn on Tools/Options/Calculation/Iteration
A21:
Potential GDP, initially set equal to the value of actual GDP so the economy starts with no GDP gap.
A22:
Inflation rate: - predetermined in initial period - determined by price adjustment process in succeeding periods
B22:
Predetermined
C22:
Determined by price adjustment: infl = s*infl(t-1) + f*[Y(t-1) - Yp(t-1)]/Yp(t-1)
A23:
=Tf + tY
A24:
=a + b (Y-T)
A25:
=e-dR
A26:
=G
A27:
=g - mY - nR
A28:
IS curve: = C + I + G + X
A29:
LM curve: = (k/h)Y - (1/h)(M/P)
A30:
Price level: - predetermined in initial period - determined by price adjustment process in succeeding periods
B30:
Exogenously determined
C30:
Determined by price adjustment process: = P(t-1)*(1+infl)
A33:
Unemployment rate (from Okun's Law) =.045+ 3*(Yp-Y)/Yp
Page 12
Inflation rate
4.8% 4.5% 4.3% 4.0% 3.8% 3.5% 3.3% 3.0% 2.8% 2.5% 2.3% 2.0% 1.8% 1.5% 1.3% 1.0% 0.7% 0.5% 0.2% 0.0% -0.3% -0.5% -0.8% -1.0% -1.3% -1.5% -1.8% -2.0% -2.3% -2.5% Co Co Co lu lu lu mn mn mn
Co Co Co Co lu lu lu lu mn mn mn mn
Co Co Co lu lu lu mn mn mn
Co Co Co Co lu lu lu lu mn mn mn mn
Co Co Co Co lu lu lu lu mn mn mn mn
Unemployment rate
Co Co Co Co lu lu lu lu mn mn mn mn
Co Co Co C lu lu lu olu mn mn mn mn
Co Co C lu lu olu mn mn mn
Rate
4.8% 4.5% 4.3% 4.0% 3.8% 3.5% 3.3% 3.0% 2.8% 2.5% 2.3% 2.0% 1.8% 1.5% 1.3% 1.0% 0.7% 0.5% 0.2% 0.0% -0.3% -0.5% -0.8% -1.0% -1.3% -1.5% -1.8% -2.0% -2.3% -2.5% Co Co Co lu lu lu mn mn mn
Co Co Co Co lu lu lu lu mn mn mn mn
Co Co Co lu lu lu mn mn mn
Co Co Co Co lu lu lu lu mn mn mn mn
Time
Co Co Co Co lu lu lu lu mn mn mn mn
Co Co Co Co lu lu lu lu mn mn mn mn
Co Co Co C lu lu lu olu mn mn mn mn
Co Co C lu lu olu mn mn mn
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26
A IS/LM Model Parameters a b e d g m n k h Policy variables G Tf t M Price level P Solution T C I G X Y (IS) R (LM)
B
220 0.9 1000 2000 525 0.1 500 0.16 1000 1200 0 0.3 900 1.0 1800.2 4000.4 900.2 1200.0 -100.0 6000.6 5.0%
Page 1
Notes A2:
Parameter values are chosen exogenously
A3:
Intercept of consumption function
A4:
Marginal propensity to consume
A5:
Intercept of investment function
A6:
Sensitivity of investment to interest rates
A7:
Intercept of net export function
A8:
Marginal propensity to import
A9:
Sensitivity of net exports to interest rates
A10:
Income sensitivity of money demand
A11:
Interest sensitivity of money demand
A12:
Chosen exogenously
A13:
Government purchases
A14:
Lump-sum taxes
A15:
Income tax rate
A16:
Nominal money supply
A17:
Chosen exogenously and fixed
A18:
Price level
A19:
The solution requires solving several equations simultaneously. Turn on Tools/Options/Calculation/Iteration
A20:
=Tf + tY
A21:
=a + b (Y-T)
A22:
=e-dR
A23:
=G
A24:
=g - mY - nR
A25:
IS curve: = C + I + G + X
A26:
LM curve: = (k/h)Y - (1/h)(M/P)
Page 2
12.0% 11.5% 11.0% 10.5% 10.0% 9.5% 9.0% 8.5% 8.0%
Interest Rate
7.5% 7.0% 6.5% 6.0% 5.5% 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 5700.0
5750.0
5800.0
5850.0
5900.0
5950.0
6000.0 Real GDP
6050.0
6100.0
6150.0
6200.0
6250.0
6300.0
0.0
6300.0
Spreadsheet for Figure 2
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27
A IS/LM Model Parameters a b e d g m n k h Policy Variables G Tf t M Price level P Solution T C I G X Y (IS) Given R LM (R)
B
C
D
E
F
G
H
I
J
K
L
M
N
O
P
Q
220 0.9 1000 2000 525 0.1 500 0.16 1000
220 0.9 1000 2000 525 0.1 500 0.16 1000
220 0.9 1000 2000 525 0.1 500 0.16 1000
220 0.9 1000 2000 525 0.1 500 0.16 1000
220 0.9 1000 2000 525 0.1 500 0.16 1000
220 0.9 1000 2000 525 0.1 500 0.16 1000
220 0.9 1000 2000 525 0.1 500 0.16 1000
220 0.9 1000 2000 525 0.1 500 0.16 1000
220 0.9 1000 2000 525 0.1 500 0.16 1000
220 0.9 1000 2000 525 0.1 500 0.16 1000
220 0.9 1000 2000 525 0.1 500 0.16 1000
220 0.9 1000 2000 525 0.1 500 0.16 1000
220 0.9 1000 2000 525 0.1 500 0.16 1000
220 0.9 1000 2000 525 0.1 500 0.16 1000
220 0.9 1000 2000 525 0.1 500 0.16 1000
220 0.9 1000 2000 525 0.1 500 0.16 1000
1200 0 0.3 900
1200 0 0.3 900
1200 0 0.3 900
1200 0 0.3 900
1200 0 0.3 900
1200 0 0.3 900
1200 0 0.3 900
1200 0 0.3 900
1200 0 0.3 900
1200 0 0.3 900
1200 0 0.3 900
1200 0 0.3 900
1200 0 0.3 900
1200 0 0.3 900
1200 0 0.3 900
1200 0 0.3 900
1.0
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1879.8 4167.6 1000.0 1200.0 -101.6 6266.0 0.0% 9.2%
1863.8 4134.0 980.0 1200.0 -101.3 6212.8 1.0% 8.3%
1847.9 4100.5 960.0 1200.0 -101.0 6159.6 2.0% 7.5%
1831.9 4067.0 940.0 1200.0 -100.6 6106.4 3.0% 6.7%
1816.0 4033.5 920.0 1200.0 -100.3 6053.2 4.0% 5.8%
1800.0 4000.0 900.0 1200.0 -100.0 6000.0 5.0% 5.0%
1784.0 3966.5 880.0 1200.0 -99.7 5946.8 6.0% 4.1%
1768.1 3933.0 860.0 1200.0 -99.4 5893.6 7.0% 3.3%
1752.1 3899.5 840.0 1200.0 -99.0 5840.4 8.0% 2.5%
1736.2 3866.0 820.0 1200.0 -98.7 5787.2 9.0% 1.6%
1720.2 3832.4 800.0 1200.0 -98.4 5734.0 10.0% 0.8%
1704.3 3798.9 780.0 1200.0 -98.1 5680.9 11.0% -0.1%
1688.3 3765.4 760.0 1200.0 -97.8 5627.7 12.0% -0.9%
1672.3 3731.9 740.0 1200.0 -97.4 5574.5 13.0% -1.8%
1656.4 3698.4 720.0 1200.0 -97.1 5521.3 14.0% -2.6%
1640.4 3664.9 700.0 1200.0 -96.8 5468.1 15.0% -3.4%
Page 5
Notes B25:
Plotting the gray shaded cells with an XY scatter plot (row 25 being the X values) yields the IS-LM graph.
A26:
This row was inserted, and a range of interest rates typed in. The equations for I and X should refer to this row instead of the original LM row, which has been shifted one row down.
A27:
The LM equation is unchanged; it still refers to the Y (IS) row 25 for its Y values
Page 6
Figure 3
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
A AD Curve Parameters a b e d g m n k h Policy variables G Tf t M Solution T C I G X Y (IS) R (LM) P
B
C
D
E
F
G
H
I
J
K
L
M
N
O
P
Q
R
220 0.9 1000 2000 525 0.1 500 0.16 1000
220 0.9 1000 2000 525 0.1 500 0.16 1000
220 0.9 1000 2000 525 0.1 500 0.16 1000
220 0.9 1000 2000 525 0.1 500 0.16 1000
220 0.9 1000 2000 525 0.1 500 0.16 1000
220 0.9 1000 2000 525 0.1 500 0.16 1000
220 0.9 1000 2000 525 0.1 500 0.16 1000
220 0.9 1000 2000 525 0.1 500 0.16 1000
220 0.9 1000 2000 525 0.1 500 0.16 1000
220 0.9 1000 2000 525 0.1 500 0.16 1000
220 0.9 1000 2000 525 0.1 500 0.16 1000
220 0.9 1000 2000 525 0.1 500 0.16 1000
220 0.9 1000 2000 525 0.1 500 0.16 1000
220 0.9 1000 2000 525 0.1 500 0.16 1000
220 0.9 1000 2000 525 0.1 500 0.16 1000
220 0.9 1000 2000 525 0.1 500 0.16 1000
220 0.9 1000 2000 525 0.1 500 0.16 1000
1200 0 0.3 900
1200 0 0.3 900
1200 0 0.3 900
1200 0 0.3 900
1200 0 0.3 900
1200 0 0.3 900
1200 0 0.3 900
1200 0 0.3 900
1200 0 0.3 900
1200 0 0.3 900
1200 0 0.3 900
1200 0 0.3 900
1200 0 0.3 900
1200 0 0.3 900
1200 0 0.3 900
1200 0 0.3 900
1200 0 0.3 900
1692.6 3774.5 765.4 1200.0 -97.9 5642.1 11.7% 1.16
1698.5 3786.8 772.8 1200.0 -98.0 5661.6 11.4% 1.15
1704.4 3799.3 780.2 1200.0 -98.1 5681.4 11.0% 1.14
1710.5 3812.0 787.8 1200.0 -98.2 5701.6 10.6% 1.13
1716.6 3824.9 795.5 1200.0 -98.3 5722.1 10.2% 1.12
1722.9 3838.1 803.4 1200.0 -98.5 5743.0 9.8% 1.11
1729.3 3851.5 811.4 1200.0 -98.6 5764.3 9.4% 1.10
1735.8 3865.2 819.5 1200.0 -98.7 5786.0 9.0% 1.09
1742.4 3879.1 827.8 1200.0 -98.8 5808.1 8.6% 1.08
1749.2 3893.3 836.3 1200.0 -99.0 5830.6 8.2% 1.07
1756.0 3907.7 844.9 1200.0 -99.1 5853.5 7.8% 1.06
1763.0 3922.4 853.7 1200.0 -99.3 5876.8 7.3% 1.05
1770.2 3937.4 862.6 1200.0 -99.4 5900.6 6.9% 1.04
1777.5 3952.7 871.8 1200.0 -99.5 5924.9 6.4% 1.03
1784.9 3968.3 881.1 1200.0 -99.7 5949.6 5.9% 1.02
1792.5 3984.2 890.5 1200.0 -99.8 5974.8 5.5% 1.01
1800.2 4000.4 900.2 1200.0 -100.0 6000.6 5.0% 1.00
Page 7
Notes A1:
The AD curve plots the equilibrium GDP in the IS-LM model against different price levels. Thus, the IS-LM model was copied to several columns. The price level row was moved to the bottom, and different values for the price level are given for each column.
B23:
Charting an XY scatter plot of the shaded cells yields the AD curve plot
A25:
A range of values for the price level are entered into columns B - R
Page 8
AD curve plot 1.16 1.15 1.14 1.13 1.12 1.11 1.10 Price Level
1.09 1.08 1.07 1.06 1.05 1.04 1.03 1.02 1.01 1.00 0.99 5625.0 5650.0 5675.0 5700.0 5725.0 5750.0 5775.0 5800.0 5825.0 5850.0 5875.0 5900.0 5925.0 5950.0 5975.0 6000.0 6025.0 Real GDP
000.0 6025.0
Figure 4
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34
A AS-AD Model Parameters a b e d g m n k h s f Policy variables G Tf t mgth M Solution Yp infl T C I G X Y R P Time Other variables Unempl GDP gap
B
C
D
E
F
G
H
I
J
K
L
M
N
O
P
Q
R
S
T
U
V
W
X
Y
Z
AA
220 0.9 1000 2000 525 0.1 500 0.16 1000 0.5 1.2
220 0.9 1000 2000 525 0.1 500 0.16 1000 0.5 1.2
220 0.9 1000 2000 525 0.1 500 0.16 1000 0.5 1.2
220 0.9 1000 2000 525 0.1 500 0.16 1000 0.5 1.2
220 0.9 1000 2000 525 0.1 500 0.16 1000 0.5 1.2
220 0.9 1000 2000 525 0.1 500 0.16 1000 0.5 1.2
220 0.9 1000 2000 525 0.1 500 0.16 1000 0.5 1.2
220 0.9 1000 2000 525 0.1 500 0.16 1000 0.5 1.2
220 0.9 1000 2000 525 0.1 500 0.16 1000 0.5 1.2
220 0.9 1000 2000 525 0.1 500 0.16 1000 0.5 1.2
220 0.9 1000 2000 525 0.1 500 0.16 1000 0.5 1.2
220 0.9 1000 2000 525 0.1 500 0.16 1000 0.5 1.2
220 0.9 1000 2000 525 0.1 500 0.16 1000 0.5 1.2
220 0.9 1000 2000 525 0.1 500 0.16 1000 0.5 1.2
220 0.9 1000 2000 525 0.1 500 0.16 1000 0.5 1.2
220 0.9 1000 2000 525 0.1 500 0.16 1000 0.5 1.2
220 0.9 1000 2000 525 0.1 500 0.16 1000 0.5 1.2
220 0.9 1000 2000 525 0.1 500 0.16 1000 0.5 1.2
220 0.9 1000 2000 525 0.1 500 0.16 1000 0.5 1.2
220 0.9 1000 2000 525 0.1 500 0.16 1000 0.5 1.2
220 0.9 1000 2000 525 0.1 500 0.16 1000 0.5 1.2
220 0.9 1000 2000 525 0.1 500 0.16 1000 0.5 1.2
220 0.9 1000 2000 525 0.1 500 0.16 1000 0.5 1.2
220 0.9 1000 2000 525 0.1 500 0.16 1000 0.5 1.2
220 0.9 1000 2000 525 0.1 500 0.16 1000 0.5 1.2
220 0.9 1000 2000 525 0.1 500 0.16 1000 0.5 1.2
1200 0 0.3 0.0% 900
1400 0 0.3 0.0% 900
1200 0 0.3 0.0% 900
1200 0 0.3 0.0% 900
1200 0 0.3 0.0% 900
1200 0 0.3 0.0% 900
1200 0 0.3 0.0% 900
1200 0 0.3 0.0% 900
1200 0 0.3 0.0% 900
1200 0 0.3 0.0% 900
1200 0 0.3 0.0% 900
1200 0 0.3 0.0% 900
1200 0 0.3 0.0% 900
1200 0 0.3 0.0% 900
1200 0 0.3 0.0% 900
1200 0 0.3 0.0% 900
1200 0 0.3 0.0% 900
1200 0 0.3 0.0% 900
1200 0 0.3 0.0% 900
1200 0 0.3 0.0% 900
1200 0 0.3 0.0% 900
1200 0 0.3 0.0% 900
1200 0 0.3 0.0% 900
1200 0 0.3 0.0% 900
1200 0 0.3 0.0% 900
1200 0 0.3 0.0% 900
6000.6 0.0% 1800.2 4000.4 900.2 1200.0 -100.0 6000.6 5.0% 1.00 0
6000.6 0.0% 1869.5 4145.9 827.1 1400.0 -141.4 6231.6 8.6% 1.00 1
6000.6 4.6% 1765.7 3928.1 857.1 1200.0 -99.3 5885.8 7.1% 1.05 2
6000.6 0.0% 1765.6 3927.8 856.9 1200.0 -99.3 5885.4 7.2% 1.05 3
6000.6 -2.3% 1783.1 3964.6 878.9 1200.0 -99.7 5943.8 6.1% 1.02 4
6000.6 -2.3% 1801.0 4002.0 901.2 1200.0 -100.0 6003.2 4.9% 1.00 5
6000.6 -1.1% 1809.6 4020.1 912.0 1200.0 -100.2 6031.8 4.4% 0.99 6
6000.6 0.1% 1808.9 4018.7 911.2 1200.0 -100.2 6029.7 4.4% 0.99 7
6000.6 0.6% 1804.0 4008.5 905.1 1200.0 -100.1 6013.5 4.7% 1.00 8
6000.6 0.6% 1799.6 3999.2 899.5 1200.0 -100.0 5998.7 5.0% 1.00 9
6000.6 0.2% 1797.7 3995.1 897.1 1200.0 -100.0 5992.3 5.1% 1.00 10
6000.6 0.0% 1798.0 3995.8 897.5 1200.0 -100.0 5993.4 5.1% 1.00 11
6000.6 -0.2% 1799.3 3998.5 899.1 1200.0 -100.0 5997.7 5.0% 1.00 12
6000.6 -0.1% 1800.4 4000.8 900.5 1200.0 -100.0 6001.3 5.0% 1.00 13
6000.6 -0.1% 1800.8 4001.7 901.0 1200.0 -100.0 6002.8 4.9% 1.00 14
6000.6 0.0% 1800.7 4001.5 900.9 1200.0 -100.0 6002.3 5.0% 1.00 15
6000.6 0.0% 1800.4 4000.8 900.5 1200.0 -100.0 6001.2 5.0% 1.00 16
6000.6 0.0% 1800.1 4000.2 900.1 1200.0 -100.0 6000.3 5.0% 1.00 17
6000.6 0.0% 1800.0 4000.0 900.0 1200.0 -100.0 6000.0 5.0% 1.00 18
6000.6 0.0% 1800.0 4000.1 900.1 1200.0 -100.0 6000.1 5.0% 1.00 19
6000.6 0.0% 1800.1 4000.3 900.2 1200.0 -100.0 6000.4 5.0% 1.00 20
6000.6 0.0% 1800.2 4000.4 900.2 1200.0 -100.0 6000.7 5.0% 1.00 21
6000.6 0.0% 1800.2 4000.5 900.3 1200.0 -100.0 6000.7 5.0% 1.00 22
6000.6 0.0% 1800.2 4000.4 900.3 1200.0 -100.0 6000.7 5.0% 1.00 23
6000.6 0.0% 1800.2 4000.4 900.2 1200.0 -100.0 6000.6 5.0% 1.00 24
6000.6 0.0% 1800.2 4000.3 900.2 1200.0 -100.0 6000.6 5.0% 1.00 25
4.50% 0.00%
-7.05% 3.85%
10.24% -1.91%
10.26% -1.92%
7.34% -0.95%
4.37% 0.04%
2.94% 0.52%
3.04% 0.49%
3.86% 0.21%
4.60% -0.03%
4.91% -0.14%
4.86% -0.12%
4.65% -0.05%
4.46% 0.01%
4.39% 0.04%
4.41% 0.03%
4.47% 0.01%
4.51% 0.00%
4.53% -0.01%
4.52% -0.01%
4.51% 0.00%
4.50% 0.00%
4.49% 0.00%
4.49% 0.00%
4.50% 0.00%
4.50% 0.00%
Page 11
Notes A2:
Parameter values are chosen exogenously
A3:
Intercept of consumption function
A4:
Marginal propensity to consume
A5:
Intercept of investment function
A6:
Sensitivity of investment to interest rates
A7:
Intercept of net export function
A8:
Marginal propensity to import
A9:
Sensitivity of net exports to interest rates
A10:
Income sensitivity of money demand
A11:
Interest sensitivity of money demand
A12:
Persistence of inflation parameter; the fraction of the previous period's inflation that is expected the current period
A13:
Sensitivity of inflation to market conditions (i. e. distance from potential GDP)
A14:
Chosen exogenously
A15:
Government purchases
C15:
Government purchases increases by 200 this period...
D15:
…but returns to 1200 this period
A16:
Lump-sum taxes
A17:
Income tax rate
A18:
The growth rate of the money supply
A19:
Nominal money supply: - predetermined in initial period - determined by mgth in subsequent periods
A20:
The solution requires solving several equations simultaneously. Turn on Tools/Options/Calculation/Iteration
A21:
Potential GDP, initially set equal to the value of actual GDP so the economy starts with no GDP gap.
A22:
Inflation rate: - predetermined in initial period - determined by price adjustment process in succeeding periods
B22:
Predetermined
C22:
Determined by price adjustment: infl = s*infl(t-1) + f*[Y(t-1) - Yp(t-1)]/Yp(t-1)
A23:
=Tf + tY
A24:
=a + b (Y-T)
A25:
=e-dR
A26:
=G
A27:
=g - mY - nR
A28:
IS curve: = C + I + G + X
A29:
LM curve: = (k/h)Y - (1/h)(M/P)
A30:
Price level: - predetermined in initial period - determined by price adjustment process in succeeding periods
B30:
Exogenously determined
C30:
Determined by price adjustment process: = P(t-1)*(1+infl)
A33:
Unemployment rate (from Okun's Law) =.045+ 3*(Yp-Y)/Yp
Page 12
Inflation rate
4.8% 4.5% 4.3% 4.0% 3.8% 3.5% 3.3% 3.0% 2.8% 2.5% 2.3% 2.0% 1.8% 1.5% 1.3% 1.0% 0.7% 0.5% 0.2% 0.0% -0.3% -0.5% -0.8% -1.0% -1.3% -1.5% -1.8% -2.0% -2.3% -2.5% Co Co Co lu lu lu mn mn mn
Co Co Co Co lu lu lu lu mn mn mn mn
Co Co Co lu lu lu mn mn mn
Co Co Co Co lu lu lu lu mn mn mn mn
Co Co Co Co lu lu lu lu mn mn mn mn
Unemployment rate
Co Co Co Co lu lu lu lu mn mn mn mn
Co Co Co C lu lu lu olu mn mn mn mn
Co Co C lu lu olu mn mn mn
Rate
4.8% 4.5% 4.3% 4.0% 3.8% 3.5% 3.3% 3.0% 2.8% 2.5% 2.3% 2.0% 1.8% 1.5% 1.3% 1.0% 0.7% 0.5% 0.2% 0.0% -0.3% -0.5% -0.8% -1.0% -1.3% -1.5% -1.8% -2.0% -2.3% -2.5% Co Co Co lu lu lu mn mn mn
Co Co Co Co lu lu lu lu mn mn mn mn
Co Co Co lu lu lu mn mn mn
Co Co Co Co lu lu lu lu mn mn mn mn
Time
Co Co Co Co lu lu lu lu mn mn mn mn
Co Co Co Co lu lu lu lu mn mn mn mn
Co Co Co C lu lu lu olu mn mn mn mn
Co Co C lu lu olu mn mn mn
