The IS-LM model basically, is made up of two components: IS & LM curves. The IS curve represents a “[negative] relationship between the interest rate and the level of income that arises in the market for goods and services.” (Mankiw, 2010) IS stands for investment and saving. IS curve represents the market for goods and … Continue reading IS-LM Model – Theories of Short-Run Fluctuations
The Keynesian Cross is “[a] simple model of income determination, based on the ideas in Keynes’s General Theory, which shows how changes in spending can have a multiplied effect on aggregate income.” (Mankiw, 2010) Well, it might be a nice simple model with neatly placed lines, however, this only measures a closed economy and wrongly … Continue reading Keynesian Cross – Theories of Short-Run Fluctuations
Having faith in the Keynesian belief intends that government spending helps provide economic stimulus for the economy, in doing so this view can contradict itself when governments revenue exceeds government spending, causing malinvestment if anything. (Higgs, 2009) Additionally, it follows as the government is the largest net borrower then governments themselves are the ones who … Continue reading Money Pumping – What Malinvestments?