- Subject index
Macroeconomics Simplified explains the intuition behind Keynesian and neoclassical macroeconomics using graphs and simple algebra.
It provides students with a strong conceptual basis for understanding the tension between Keynesian and neoclassical systems that has once again came to the forefront since the 2007–08 financial crisis.
The book shows how theoretical perspectives affect macroeconomic policy choices and proposes a pragmatic approach to policy that is sensitive to prevailing economic conditions. Students of economics and business alike will enjoy its concise and engaging analysis and find the applications and references to the Indian economy helpful.
Chapter 6: The IS-LM Model
The IS-LM Model
We now turn to a standard rite of passage for economics students: the IS-LM model. This model has two sectors, namely the goods market and the money market. It shows how dynamics in the financial sector affect the level of real economic activity.
As noted in Chapter 4, the IS-LM framework was actually developed by Hicks in 19371 as an interpretation of Keynes in an article published several months after the General Theory. Although many economists who considered themselves ‘Keynesians’ were uncomfortable with it, Keynes himself wrote and told Hicks that he had ‘next to nothing to say by the way of criticism’.2 Modern-day new Keynesians and post Keynesians consider Keynes's judgement to have been rather rash in this instance. They ...