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May 24, 2006

A Simple IS/MP Model

We developed the Keynesian IS/LM Model assuming a fixed price level.

The amount of investment depends on the interest rate.


In the Simple Keynesian Model, letting investment be a function of the interest rate produces an IS curve. Changes in goverment spending can shift that IS curve. The MP curve reflects the central bank's policy of setting the interest rate.


Posted by bparke at May 24, 2006 10:43 PM