Talk:IS–LM model

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IS and LM[edit]

So what do 'IS' and 'LM' mean? --Vunzmstr 12:17, 2 May 2005 (UTC)

Did you read the article? --Vikingstad 23:38, May 2, 2005 (UTC)
A rude question. Thanks to Jdevine's 2 May edits, it is now explained what IS an LM stands for. I could find it myself elsewhere on the internet, but since I am in no way an economist I did not want to edit this article. Thanks for your constructive reply though mister Vikingstad. --Vunzmstr 08:27, 3 May 2005 (UTC)
"but since I am in no way an economist I did not want to edit this article", thank you for respecting our professioN :) — Preceding unsigned comment added by (talk) 20:39, 19 November 2011 (UTC)

in description of the LM curve it becomes a little unclear when describing the liquidity preference model in the same section, saying it is downward sloping, as opposed to the upwaard sloping LM line. they are part of the same section but seem to be explained in somewhat contradictory terms. perhaps it could be better explained how/why the LM curve relates to the liquidity preference function?Patric627 (talk) 05:16, 25 November 2011 (UTC)


Is IS/LM identical to IS-LM identical to Hicks-Hansen IS-LM Model??

To be proactive (even if ignorant), I eliminated the hyperlink to the last item, as I understand that the whole article is about Hicks-Hansen IS-LM Model. MGTom 00:01, August 9, 2005 (UTC)

Hi, does someone know what effects in economic policy a horizontal LM curve has? and when and why the IS curve is relatively steep? thanks, rich

A horizontal LM curve means fiscal policy has a strong effect on income (theoretically a horizontal LM curve means money demand has an infinite responsiveness). The gradient of the IS curve is dependant on marginal propensity to consume (the lower the MPC, the steeper the IS curve) Beeson_uk 20.10.06

In the early part of the article, the y-axis is identified as representing the real interest rate, i. Is that supposed to be the real interest rate, or the nominal interest rate? I had thought (here's a link in support ) that it's the nominal interest rate when we're talking about the LM curve and the real one when we're talking about the IS curve


Didn't Franco Modigliani help build this model from Keynes' summary of his theoretical work in General Theory?

The part "shifts" needs significant revision, not only it is unclear, but has mistakes.

Link here from THE ECONOMIST

Hansen and History[edit]

Where is Alvin Hansen in the history section? Haberstr 05:07, 13 October 2007 (UTC)


why all the bold?


Is there a reason we were using manual HTML for this image? I've fixed it to use the correct wikimarkup; beforehand, it was stretching the article so I had to scroll right to view the whole graph. Johnleemk | Talk 16:43, 20 May 2006 (UTC)


Does anyone else think this page should be renamed to IS-LM model? First, the slash is confusing; second, the other models I found were named using hyphens, not slashes (AD-IA Model, for example; see my next post for info about the cap). I am also requesting an article on the AD-AS model, which (strangely) does not have an article, and I am requesting it with the hyphen instead of a slash, following the conventions of the existing articles. I won't move it even if we reach consensus, since I'd like to have it done by an administrator to preserve the edit history. -- Tuvok^Talk|Desk|Contribs  06:50, 27 November 2006 (UTC)

Yeah, I forgot: There does not seem to be a general agreement as to whether these articles should capitalize "model" or not. Some do, some don't. There also is no real consistency over the entire Internet about whether the punctuation between AD and AS is a slash or a hyphen. This has the potential to become a real Wikipedia issue. -- Tuvok^Talk|Desk|Contribs  06:56, 27 November 2006 (UTC)


I do think this article could be improved if we include the mechanics of the model, just what has been done to the Mundell-Fleming Model. __earth (Talk) 03:10, 3 April 2007 (UTC)

Good idea! I agree, go ahead and add a section for explaining the mechanics if you like. --I (talk) 04:56, 25 November 2008 (UTC)


I'm new here - hope I am following the rules. I see that the link for Price Deflator in the discussion of the LM schedule does not go to the price deflator page but instead goes to the price level page. Richard.Knox (talk) 04:37, 19 November 2008 (UTC)

This could have gone either way--could have linked "price deflator" to GDP deflator. Instead, I changed it to talk about price level instead of the deflator, because I think that's more correct at a conceptual level (regardless of the empirical application). CRETOG8(t/c) 12:58, 19 November 2008 (UTC)


The last paragraph of the discussion of LM Schedule contains an un matched right paren. Richard.Knox (talk) —Preceding undated comment was added at 03:01, 2 January 2009 (UTC).


In intro macro we were taught this model in stages; the basic "closed economy" model came first, and the implications of international trade as either a "large" or "small" economy were introduced later. It was an effective way to learn it, and I wonder if we shouldn't split off all the "adapting this part of the model for international trade" paragraphs into their own section, leaving the basic explanation simple. I would have a hard time keeping it all straight as a new reader. Therealhazel (talk) 04:48, 28 January 2009 (UTC)

Request for help[edit]

Can someone verify for me that this edit was vandalism? Evercat (talk) 11:16, 1 April 2009 (UTC)


There should be a section on the validity, applicability and limitations of this model. E.g. what happens at low interest-rates (zero lower bound)? A Lower interest rate does not always cause people to save less, not even always to invest more. -- (talk) 15:02, 23 October 2012 (UTC)

LM Curve[edit]

I know this is not that important, but there is a small error in the section about the LM curve, where it is said that "As GDP is considered exogenous to the liquidity preference function, changes in GDP shift the curve. For example, an increase in the demand for money for transactions will increase interest rates through the money market, and cause the LM curve to shift to up and to the left." Explanation: While GDP, or Y, is considered an exogenous variable on the money market, changes in it still do not shift the LM curve, since Y in on one of the two axes. An increase in GDP would increase the demand for money for transactions and therefore the interest rate, but this would graphically be represented by walking on the LM curve (in the upward/right direction), not shifting it.

I have another doubt. It is mentioned that in LM curve, Income is the dependent variable. I understand the line of logic that LM curve is derived from Liquidity preference curve and Liquidity preference curve shifts with changes in Income. Hence, for different levels of income, rate of interest in estimated (for given money supply) taking analogous values from respective Liquidity preference curves. My doubt is: isn't interest rate the independent variable in Liquidity preference curve considering speculative demand. For given Income, current rate of interest (nominal) is the key source of expectations about rise or fall in interest rates in future (For further on this refer to last paragraph from wiki page of speculative demand). Thus, interest rate influences speculative demand and income influences transaction demand so overall demand for money is a function of both income and nominal interest rate. So aren't both income and interest rate playing the role of independent variables in bringing about equilibrium in money market? Akhilgoyal19 (talk) 17:43, 24 August 2013 (UTC)

The LM section needs some graphs[edit]

I found the LM section particularly confusing. The first reference to a graph refers using he Liquidity Preference function, which is downward sloping. It sounded as though Liquidity Preference were the actual measurement used to determine the more abstract LM.

It took me a while (and several paragraphs) to realize that the downward sloping Liquidity Preference wasn't actually displayed; it was just an unseen intermediate step towards generating the upward-sloping LM. JimJJewett (talk) 18:17, 16 August 2013 (UTC)

I have created and added a money market equilibrium diagram. I would appreciate somebody checking it for errors and/or improving it. --NilsTycho (talk) 19:39, 6 April 2014 (UTC)

In the LM curve section, under Transaction demand following was mentioned: "As GDP is considered exogenous to the liquidity preference function, changes in GDP shift the curve. For example, an increase in the demand for money for transactions will increase interest rates through the money market, and cause the LM curve to shift to up and to the left". As stated above this indeed is wrong and I think this is wrong enough to confuse students. I have done some editing in this line and hope this is now okay. Akhilgoyal19 (talk) 16:47, 24 August 2013 (UTC)

Endogenous money[edit]

EM flattens the LM. Cn we graphically show this? [1](Lihaas (talk) 18:55, 2 November 2013 (UTC)).