Tiêu đề Unit 2 Macroeconomics ✅

UNIT- II RECENT DEVELOPMENT IN MACROECONOMICS Price and output determination in Monetarism, New Classical Macroeconomics, Real Business Cycle Theory and New Keynesian Macroeconomics.
Price and output determination under IS-LM Model Both the classical and Keynesian economics suffer from their own shortcomings. Classical economics as supply side neglects the demand side while Keynesian economics as demand side neglects the supply side. Classical economics assumes that the level of income is given and doesn’t have effect on interest rate , i.e. interest rate is determined by investment and saving. Keynesian economics doesn’t consider interest rate as a determinants of income & advocate that is only determined by the equality of AD & AS. In Keynesian economics interest rate is assumed to be given somewhere and saving and investment equality determine the level of income and interest is not determining factor. Both of the systems are not wrong but also both are not complete. Hence modern economists have combined both of them and then developed IS LM model, synthesizing them. Therefore interest and income are determined simultaneously.
(i) IS curve: It shows the various combinations of national income and rate of interest that gives the real market equilibrium on goods market equilibrium Therefore IS curve is the locus of various combination between interest and income representing goods market equilibrium. Equilibrium in the sense that total injection in the economy is just sufficient to meet the total leakage from the economy. According to Keynes for any level of output to be in equilibrium level, it should be equal to aggregate demand, i.e., Y = AD The AD in simple economy consists of three components including consumption expenditure, investment expenditure and government expenditure.