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
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: Suggested Citation