Parameters A B e D G M N K H Policy Variables G T M Price Level P T C I G X T
Parameters A B e D G M N K H Policy Variables G T M Price Level P T C I G X T
Parameters A B e D G M N K H Policy Variables G T M Price Level P T C I G X T
A B
1 IS/LM Model
2 Parameters
3 a 220
4 b 0.9
5 e 1000
6 d 2000
7 g 525
8 m 0.1
9 n 500
10 k 0.16
11 h 1000
12 Policy variables
13 G 1200
14 Tf 0
15 t 0.3
16 M 900
17 Price level
18 P 1.0
19 Solution
20 T 1800.2
21 C 4000.4
22 I 900.2
23 G 1200.0
24 X -100.0
25 Y (IS) 6000.6
26 R (LM) 5.0%
Page 1
Notes
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
Page 2
12.0%
11.5%
11.0%
10.5%
10.0%
9.5%
9.0%
8.5%
8.0%
7.5%
7.0%
Interest Rate
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 6050.0 6100.0 6150.0 6200.0 6250.0 6300.0
Real GDP
0.0 6300.0
Spreadsheet for Figure 2
A B C D E F G H I J K L M N O P Q
1 IS/LM Model
2 Parameters
3 a 220 220 220 220 220 220 220 220 220 220 220 220 220 220 220 220
4 b 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9
5 e 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000
6 d 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000
7 g 525 525 525 525 525 525 525 525 525 525 525 525 525 525 525 525
8 m 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1
9 n 500 500 500 500 500 500 500 500 500 500 500 500 500 500 500 500
10 k 0.16 0.16 0.16 0.16 0.16 0.16 0.16 0.16 0.16 0.16 0.16 0.16 0.16 0.16 0.16 0.16
11 h 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000
12 Policy Variables
13 G 1200 1200 1200 1200 1200 1200 1200 1200 1200 1200 1200 1200 1200 1200 1200 1200
14 Tf 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
15 t 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3
16 M 900 900 900 900 900 900 900 900 900 900 900 900 900 900 900 900
17 Price level
18 P 1.0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
19 Solution
20 T 1879.8 1863.8 1847.9 1831.9 1816.0 1800.0 1784.0 1768.1 1752.1 1736.2 1720.2 1704.3 1688.3 1672.3 1656.4 1640.4
21 C 4167.6 4134.0 4100.5 4067.0 4033.5 4000.0 3966.5 3933.0 3899.5 3866.0 3832.4 3798.9 3765.4 3731.9 3698.4 3664.9
22 I 1000.0 980.0 960.0 940.0 920.0 900.0 880.0 860.0 840.0 820.0 800.0 780.0 760.0 740.0 720.0 700.0
23 G 1200.0 1200.0 1200.0 1200.0 1200.0 1200.0 1200.0 1200.0 1200.0 1200.0 1200.0 1200.0 1200.0 1200.0 1200.0 1200.0
24 X -101.6 -101.3 -101.0 -100.6 -100.3 -100.0 -99.7 -99.4 -99.0 -98.7 -98.4 -98.1 -97.8 -97.4 -97.1 -96.8
25 Y (IS) 6266.0 6212.8 6159.6 6106.4 6053.2 6000.0 5946.8 5893.6 5840.4 5787.2 5734.0 5680.9 5627.7 5574.5 5521.3 5468.1
26 Given R 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 10.0% 11.0% 12.0% 13.0% 14.0% 15.0%
27 LM (R) 9.2% 8.3% 7.5% 6.7% 5.8% 5.0% 4.1% 3.3% 2.5% 1.6% 0.8% -0.1% -0.9% -1.8% -2.6% -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
A B C D E F G H I J K L M N O P Q R
1 AD Curve
2 Parameters
3 a 220 220 220 220 220 220 220 220 220 220 220 220 220 220 220 220 220
4 b 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9
5 e 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000
6 d 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000
7 g 525 525 525 525 525 525 525 525 525 525 525 525 525 525 525 525 525
8 m 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1
9 n 500 500 500 500 500 500 500 500 500 500 500 500 500 500 500 500 500
10 k 0.16 0.16 0.16 0.16 0.16 0.16 0.16 0.16 0.16 0.16 0.16 0.16 0.16 0.16 0.16 0.16 0.16
11 h 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000
12 Policy variables
13 G 1200 1200 1200 1200 1200 1200 1200 1200 1200 1200 1200 1200 1200 1200 1200 1200 1200
14 Tf 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
15 t 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3
16 M 900 900 900 900 900 900 900 900 900 900 900 900 900 900 900 900 900
17 Solution
18 T 1692.6 1698.5 1704.4 1710.5 1716.6 1722.9 1729.3 1735.8 1742.4 1749.2 1756.0 1763.0 1770.2 1777.5 1784.9 1792.5 1800.2
19 C 3774.5 3786.8 3799.3 3812.0 3824.9 3838.1 3851.5 3865.2 3879.1 3893.3 3907.7 3922.4 3937.4 3952.7 3968.3 3984.2 4000.4
20 I 765.4 772.8 780.2 787.8 795.5 803.4 811.4 819.5 827.8 836.3 844.9 853.7 862.6 871.8 881.1 890.5 900.2
21 G 1200.0 1200.0 1200.0 1200.0 1200.0 1200.0 1200.0 1200.0 1200.0 1200.0 1200.0 1200.0 1200.0 1200.0 1200.0 1200.0 1200.0
22 X -97.9 -98.0 -98.1 -98.2 -98.3 -98.5 -98.6 -98.7 -98.8 -99.0 -99.1 -99.3 -99.4 -99.5 -99.7 -99.8 -100.0
23 Y (IS) 5642.1 5661.6 5681.4 5701.6 5722.1 5743.0 5764.3 5786.0 5808.1 5830.6 5853.5 5876.8 5900.6 5924.9 5949.6 5974.8 6000.6
24 R (LM) 11.7% 11.4% 11.0% 10.6% 10.2% 9.8% 9.4% 9.0% 8.6% 8.2% 7.8% 7.3% 6.9% 6.4% 5.9% 5.5% 5.0%
25 P 1.16 1.15 1.14 1.13 1.12 1.11 1.10 1.09 1.08 1.07 1.06 1.05 1.04 1.03 1.02 1.01 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
1.09
Price Level
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
A 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
1 AS-AD Model
2 Parameters
3 a 220 220 220 220 220 220 220 220 220 220 220 220 220 220 220 220 220 220 220 220 220 220 220 220 220 220
4 b 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9
5 e 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000
6 d 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000 2000
7 g 525 525 525 525 525 525 525 525 525 525 525 525 525 525 525 525 525 525 525 525 525 525 525 525 525 525
8 m 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1
9 n 500 500 500 500 500 500 500 500 500 500 500 500 500 500 500 500 500 500 500 500 500 500 500 500 500 500
10 k 0.16 0.16 0.16 0.16 0.16 0.16 0.16 0.16 0.16 0.16 0.16 0.16 0.16 0.16 0.16 0.16 0.16 0.16 0.16 0.16 0.16 0.16 0.16 0.16 0.16 0.16
11 h 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000
12 s 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5
13 f 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2
14 Policy variables
15 G 1200 1400 1200 1200 1200 1200 1200 1200 1200 1200 1200 1200 1200 1200 1200 1200 1200 1200 1200 1200 1200 1200 1200 1200 1200 1200
16 Tf 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
17 t 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3
18 mgth 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
19 M 900 900 900 900 900 900 900 900 900 900 900 900 900 900 900 900 900 900 900 900 900 900 900 900 900 900
20 Solution
21 Yp 6000.6 6000.6 6000.6 6000.6 6000.6 6000.6 6000.6 6000.6 6000.6 6000.6 6000.6 6000.6 6000.6 6000.6 6000.6 6000.6 6000.6 6000.6 6000.6 6000.6 6000.6 6000.6 6000.6 6000.6 6000.6 6000.6
22 infl 0.0% 0.0% 4.6% 0.0% -2.3% -2.3% -1.1% 0.1% 0.6% 0.6% 0.2% 0.0% -0.2% -0.1% -0.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
23 T 1800.2 1869.5 1765.7 1765.6 1783.1 1801.0 1809.6 1808.9 1804.0 1799.6 1797.7 1798.0 1799.3 1800.4 1800.8 1800.7 1800.4 1800.1 1800.0 1800.0 1800.1 1800.2 1800.2 1800.2 1800.2 1800.2
24 C 4000.4 4145.9 3928.1 3927.8 3964.6 4002.0 4020.1 4018.7 4008.5 3999.2 3995.1 3995.8 3998.5 4000.8 4001.7 4001.5 4000.8 4000.2 4000.0 4000.1 4000.3 4000.4 4000.5 4000.4 4000.4 4000.3
25 I 900.2 827.1 857.1 856.9 878.9 901.2 912.0 911.2 905.1 899.5 897.1 897.5 899.1 900.5 901.0 900.9 900.5 900.1 900.0 900.1 900.2 900.2 900.3 900.3 900.2 900.2
26 G 1200.0 1400.0 1200.0 1200.0 1200.0 1200.0 1200.0 1200.0 1200.0 1200.0 1200.0 1200.0 1200.0 1200.0 1200.0 1200.0 1200.0 1200.0 1200.0 1200.0 1200.0 1200.0 1200.0 1200.0 1200.0 1200.0
27 X -100.0 -141.4 -99.3 -99.3 -99.7 -100.0 -100.2 -100.2 -100.1 -100.0 -100.0 -100.0 -100.0 -100.0 -100.0 -100.0 -100.0 -100.0 -100.0 -100.0 -100.0 -100.0 -100.0 -100.0 -100.0 -100.0
28 Y 6000.6 6231.6 5885.8 5885.4 5943.8 6003.2 6031.8 6029.7 6013.5 5998.7 5992.3 5993.4 5997.7 6001.3 6002.8 6002.3 6001.2 6000.3 6000.0 6000.1 6000.4 6000.7 6000.7 6000.7 6000.6 6000.6
29 R 5.0% 8.6% 7.1% 7.2% 6.1% 4.9% 4.4% 4.4% 4.7% 5.0% 5.1% 5.1% 5.0% 5.0% 4.9% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%
30 P 1.00 1.00 1.05 1.05 1.02 1.00 0.99 0.99 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
31 Time 0 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
32 Other variables
33 Unempl 4.50% -7.05% 10.24% 10.26% 7.34% 4.37% 2.94% 3.04% 3.86% 4.60% 4.91% 4.86% 4.65% 4.46% 4.39% 4.41% 4.47% 4.51% 4.53% 4.52% 4.51% 4.50% 4.49% 4.49% 4.50% 4.50%
34 GDP gap 0.00% 3.85% -1.91% -1.92% -0.95% 0.04% 0.52% 0.49% 0.21% -0.03% -0.14% -0.12% -0.05% 0.01% 0.04% 0.03% 0.01% 0.00% -0.01% -0.01% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Page 11
Notes
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)
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.
B22: Predetermined
A23: =Tf + tY
A24: =a + b (Y-T)
A25: =e-dR
A26: =G
A27: =g - mY - nR
A28: IS curve: = C + I + G + X
Page 12
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%
Inflation rate
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 Co Co Co Co Co Co Co Co Co Co Co Co Co Co Co Co Co Co Co Co Co Co C
lu lu lu lu lu lu lu lu lu lu lu lu lu lu lu lu lu lu lu lu lu lu lu lu lu olu
mn mn mn mn mn mn mn mn mn mn mn mn mn mn mn mn mn mn mn mn mn mn mn mn mn mn
Unemployment rate
Co Co C
lu lu olu
mn mn mn
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%
Rate
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 Co Co Co Co Co Co Co Co Co Co Co Co Co Co Co Co Co Co Co Co Co Co C
lu lu lu lu lu lu lu lu lu lu lu lu lu lu lu lu lu lu lu lu lu lu lu lu lu olu
mn mn mn mn mn mn mn mn mn mn mn mn mn mn mn mn mn mn mn mn mn mn mn mn mn mn
Time
Co Co C
lu lu olu
mn mn mn