The difference between the IS-LM models as suggested by classical and Keynesian economists and its significance. Introduction: There are two main schools of thought in the field of economics. They are the Classical school of thought and the Keynesian school of thought. From very early times, the two schools of thought are known to have held different ideologies on various economic theories and concepts. Classical economists believe that prices adjust much faster in bringing back the equilibrium when it changes. On the other hand, Keynesian economists believe that it takes a much longer time for the same. Given Information: Basic introduction on Classical and Keynesian schools of thought. What is meant by the IS-LM model. The difference between the ideologies held by the two schools of thought on the IS-LM model. Explanation: All along history, the Classical economists have held ideologies that are much different from that of the Keynesian economists on various economic concepts and theories. However, there had been instances where the two schools of thought have agreed upon various economic aspects. The IS-LM model is something in which the two parties have held different standpoints. The IS-LM model or the investment-savings and liquidity preference − money supply model is an important model in economics. It depicts the interactions between the market conditions of the goods market with the money market . The key difference between the two schools of thought on the model is regarding the time taken for the model to reach the equilibrium level. Classical economists believe that when the equilibrium level is lost, it will return to the original position mush faster with the price levels adjusting accordingly. On the contrary, Keynesians believe that price levels do not move as fast as Classical economists believe in regaining the equilibrium. The significance of this varying viewpoints is the belief of Classical economists that government intervention is not needed in putting the aforesaid right. However, Keynesians believe that government intervention is needed at such an instance.

Macroeconomics

10th Edition

ISBN: 9780134896441

Author: ABEL, Andrew B., BERNANKE, Ben, CROUSHORE, Dean Darrell

Publisher: PEARSON

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Chapter 9, Problem 5AP

Chapter 10, Problem 2RQ

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Notice the major differences between our Keynesian Cross (in your chapter 9 appendix) and the Macro Equilibrium (AS and AD) diagram? Which model has more to offer in which situations?

Question Two a) Use the Keynesian Cross to derive the IS curve

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