IS-LM Model
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An IS-LM Model is a macroeconomic model used to analyse the relationship between interest rates and assets market.
- AKA: Investment-Saving and Liquidity Preference-Money Supply Model, Hicks-Hansen Model.
- See: Exogenous Variable, Endogenous Variable, Investment, Savings, Liquidity Preference, Money Supply, Supply and Demand Model.
References
2016
- (Wikipedia, 2016) ⇒ http://en.wikipedia.org/wiki/IS–LM_model
- The IS–LM model, or Hicks–Hansen model, is a macroeconomic tool that shows the relationship between interest rates (ordinate) and assets market (also known as real output in goods and services market plus money market, as abscissa). The intersection of the “investment–saving” (IS) and “liquidity preference–money supply” (LM) curves models "general equilibrium" where supposed simultaneous equilibrium occurs in both interest and assets markets.[1] Yet two equivalent interpretations are possible: first, the IS–LM model explains changes in national income when price level is fixed short-run; second, the IS–LM model shows why an aggregate demand curve can shift.[2]
- Hence, this tool is sometimes used not only to analyse economic fluctuations but also to suggest potential levels for appropriate stabilisation policies.[3]
- ↑ Gordon, Robert J. (2009). Macroeconomics (Eleventh ed.). Boston: Pearson Addison Wesley. ISBN 9780321552075.
- ↑ Mankiw, N. Gregory (2012). Macroeconomics (Eighth ed.). New York: Worth Publishers. ISBN 9781429240024.
- ↑ Sloman, John; Wride, Alison (2009). Economics (Seventh ed.). Prentice Hall. ISBN 9780273715627.