Re: DSE Macro!

Posted by Homer Simpson on Apr 23, 2014; 4:54pm
URL: http://discussion-forum.276.s1.nabble.com/DSE-Macro-tp7587665p7587682.html

Usual LM equation: M/P = kY - hi (where M/P fixed value) but now M/P with interest rate is in a particular relationship (becomes endogenous)

so, put M/P = mi (here, m is some positive co-efficient denoting that relationship) your LM equation then becomes,

=> mi = kY - hi
=>   i = kY/(m+h)

clearly, k/(m+h) < k/h (thus LM slope has become flatter as a result)