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

12 Pages Posted: 22 Sep 2014 Last revised: 5 Oct 2014

Date Written: September 21, 2014

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 IS-LM 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 Classification: E43, E21, E22, E12, E13, B22

Suggested Citation

Kim, Bryce, Critique of IS-LM: Fiscal Deficits, Loanable Funds, Keynesian Cross and IS-LM (September 21, 2014). Available at SSRN: https://ssrn.com/abstract=2499106 or http://dx.doi.org/10.2139/ssrn.2499106

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