money and banking
Table of Contents
Table of Contents
Introduction
Surfing on the waves of the global economic crises, more precisely dealing with the escalating economic disturbances in the Euro zone, the economy of United Kingdom has suffered significant difficulties under the recession umbrella. Furthermore, given the flexible exchange rate system and a very high degree of international capital mobility within the economy, the government struggles to manipulate the monetary and fiscal policy, thus overcome the complexity and reach the desired, stable condition that currently is vaguely at sight. In order to clarify the outcome of policy changes, this work will demonstrate, more precisely depict the increase in money supply and government spending through the combination of IS/LM/BP modeling, followed by Phillips curve as well (Lui, 2011).
Main Body
IS/LM Modeling The model is depicted in figure 1. Vertical axis represents interest rate (i), whereas horizontal (Y) corresponds to output/income. IS curve is downward sloping thus represents the equilibrium in goods markets. According to Mishkin (2009) IS curve is downhill as it corresponds to the increase in the interest rate that leads to the decrease of overall output. Upward slopping curve (LM) depicts the equilibrium in Financial Markets, whereas the increase of income will be followed repeatedly with the growth of the interest rate. E represents the intersect of the equilibrium in financial markets (LM) and equilibrium in goods markets (IS). The IS-LM curves, more precisely their relationship if accepted well by the research add a significant value towards the demand for money, consumption information, certain equilibrium conditions as well as clarification investment reality (Ritter, 2008). According to Mishkin and Eakins (2011) observation of IS/LM model can contribute to the evaluation of central bank actions towards the money supply and government changes as tax regulation in the rather closed
Table of Contents
Introduction
Surfing on the waves of the global economic crises, more precisely dealing with the escalating economic disturbances in the Euro zone, the economy of United Kingdom has suffered significant difficulties under the recession umbrella. Furthermore, given the flexible exchange rate system and a very high degree of international capital mobility within the economy, the government struggles to manipulate the monetary and fiscal policy, thus overcome the complexity and reach the desired, stable condition that currently is vaguely at sight. In order to clarify the outcome of policy changes, this work will demonstrate, more precisely depict the increase in money supply and government spending through the combination of IS/LM/BP modeling, followed by Phillips curve as well (Lui, 2011).
Main Body
IS/LM Modeling The model is depicted in figure 1. Vertical axis represents interest rate (i), whereas horizontal (Y) corresponds to output/income. IS curve is downward sloping thus represents the equilibrium in goods markets. According to Mishkin (2009) IS curve is downhill as it corresponds to the increase in the interest rate that leads to the decrease of overall output. Upward slopping curve (LM) depicts the equilibrium in Financial Markets, whereas the increase of income will be followed repeatedly with the growth of the interest rate. E represents the intersect of the equilibrium in financial markets (LM) and equilibrium in goods markets (IS). The IS-LM curves, more precisely their relationship if accepted well by the research add a significant value towards the demand for money, consumption information, certain equilibrium conditions as well as clarification investment reality (Ritter, 2008). According to Mishkin and Eakins (2011) observation of IS/LM model can contribute to the evaluation of central bank actions towards the money supply and government changes as tax regulation in the rather closed
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