IS–LM model
IS–LM model
The IS–LM model, or Hicks–Hansen model, is a two-dimensional macroeconomic model which is used as a pedagogical tool in macroeconomic teaching. The IS–LM model shows the relationship between interest rates and output in the short run. The intersection of the "investment–saving" (IS) and "liquidity preference–money supply" (LM) curves illustrates a "general equilibrium" where supposed simultaneous
"The IS-LM model appears to describe well the behavior of the economy in the short run. In particular, the effects of monetary policy appear to be similar to those implied by the IS-LM model once dynamics are introduced in the model. An increase in the interest rate due to a monetary contraction leads to a steady decrease in output, with the maximum effect taking place after about eight quarters."
IS–LM model"Yes, IS-LM simplifies things a lot, and can’t be taken as the final word. But it has done what good economic models are supposed to do: make sense of what we see, and make highly useful predictions about what would happen in unusual circumstances. Economists who understand IS-LM have done vastly better in tracking our current crisis than people who don’t."
IS–LM model
