IS-LM basics in less than 16 minutes

22 May, 2013 at 15:53 | Posted in Economics | 5 Comments



  1. “A block diagram approach to
    macroeconomic dynamics,
    and why IS/LM is fatally flawed
    Department of Engineering Cybernetics,
    The Norwegian University of Science and Technology,
    N-7034 Trondheim, NORWAY.

    Click to access system-econ.pdf

    A dynamic model of an individual, and then an aggregate (sector), economic unit is developed. This model and other building blocks are employed to create macroeconomic models represented through block diagrams. A simulation tool based on block diagram representation is applied to a simple textbook economy with firms and households. Finally, a dynamic extension of the IS/LM static model is presented in block diagram form, and it is demonstrated through the dynamic extension that IS/LM’s way of treating money stock is flawed to a degree that implies that IS/LM must be discarded.”

    • Interesting paper!

  2. Clear and concise, thanks. The only problem is that the CB doesn’t control the money supply, but the interest rate, so that the whole thing is rather silly.

  3. I put on my Sunday’s best
    I knew I would face a hellavu test
    I had to steel my nerves
    In my drive to meet a model with the right IS-LM curves
    Keynes shouted, get to i! – this ain’t no Beauty contest.

    • Impressive, as always 🙂

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