Critique of IS-LM: Fiscal Deficits, Loanable Funds, Keynesian Cross and IS-LM

descriptionPublicationkeyboard_double_arrow_right Article , Other literature type , Preprint 01 Jan 2014 English Publisher:Elsevier BVJournal:SSRN Electronic Journal (eissn: 1556-5068,

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Authors: Kim, Minseong;

doi: 10.2139/ssrn.2499106

Critique of IS-LM: Fiscal Deficits, Loanable Funds, Keynesian Cross and IS-LM

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Abstract

This paper intends to discuss some problematic properties IS-LM and loanable funds together have when dealing with fiscal deficits. Many others have focused on its assumptions for criticism of IS-LM, but I will mainly focus on its fundamental modelling nature. To say more specifically, I will argue that ordinary IS-LM analysis is in contradictory nature to simultaneous equilibrium system, and therefore loanable funds.

Keywords

IS-LM; loanable funds; budget deficits; fiscal policy; fiscal multiplier; simultaneous equilibrium, jel: jel:E21, jel: jel:E43, jel: jel:E22, jel: jel:B22, jel: jel:E12

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