Krugman explains the IS-LM graph… well, what the IS and LM curve mean,,, a little

A number of readers, both at this blog and other places, have been asking for an explanation of what IS-LM is all about. Fair enough – this blogosphere conversation has been an exchange among insiders, and probably a bit baffling to normal human beings (which is why I have been labeling my posts “wonkish”).

[Update: IS-LM stands for investment-savings, liquidity-money — which will make a lot of sense if you keep reading]

So, the first thing you need to know is that there are multiple correct ways of explaining IS-LM. That’s because it’s a model of several interacting markets, and you can enter from multiple directions, any one of which is a valid starting point.

via IS-LMentary – NYTimes.com.

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About mkevane

Economist at Santa Clara University and Director of Friends of African Village Libraries.
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