« The IS/MP Model | Main | Test Taking Strategies »
September 27, 2007
The IS/MP Model
The IS/MP Model combines the IS Curve with a very simple representation of monetary policy.
We can derive an IS Curve from a Simple Keynesian Model.
The derivation we use for the IS/LM Model emphasizes the role of the interest rate by putting it on the vertical axis. The MP Curve depicts a monetary policy that sets the interest rate. Together, these curves are the IS/MP Model.
This exercise illustrates how presentations of economic ideas carefully choose the variables to be on the axes. Changes in additional variables shift the curves.
Changes in government spending (or taxes) shift the IS Curve.
Posted by bparke at September 27, 2007 10:30 PM