Since I(r) is not constant, how could Y be constant on the left side of the equation of the goods market equilibrium - IS curve function?
Thank you!
Ps: I don't know where I should write function, or equation, so sorry about that.
Add a comment
|
1 Answer
$\begingroup$
$\endgroup$
10
In the Mundel Fleming model it is not constant. You must be working with some simplified version of Mundel Fleming model.
If Y is held fixed that means something else has to change when I changes. In your example, only other thing that is not fixed is the consumption function $C(.)$ so when I increases something must happen there. Maybe marginal propensity to consume decreases or autonomous consumption shrinks. The source of the model should explain its assumptions.
-
$\begingroup$ Hi, thank you for your answer! So, in this case I(r) is constant? In addition, how can C(.) not be constant, when it depends on Y̅ and T̅, which are both constant variables C(Y̅–T̅)? Thanks! $\endgroup$– studentCommented Sep 9, 2022 at 14:37
-
$\begingroup$ C(.) is a function, for example C(Y-T) could look like $C=c_0+ c_1(Y-T)$ assuming linear consumption function. The parameters $c_0$ and $c_1$ could change if you allow them to be for the sake of the problems variables. $\endgroup$– 1muflon1 ♦Commented Sep 9, 2022 at 14:43
-
$\begingroup$ @student you are welcome if the above answer answered your question consider accepting it $\endgroup$– 1muflon1 ♦Commented Sep 9, 2022 at 15:11
-
-
$\begingroup$ @student you can click on the tick below upvote button. You should also consider doing that for other people who answered your questions $\endgroup$– 1muflon1 ♦Commented Sep 10, 2022 at 9:57