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The model was an attempt to integrate the phenomenon of secular stagnation in the IS-LM model. Whereas in the IS-LM model, high unemployment would be a temporary phenomenon caused by sticky wages and prices, in the IS-LM-NAC model high unemployment may be a permanent situation caused by pessimistic beliefs - a particular instance of what Keynes ...
The Mundell–Fleming model under a fixed exchange rate regime also has completely different implications from those of the closed economy IS-LM model. In the closed economy model, if the central bank expands the money supply the LM curve shifts out, and as a result income goes up and the domestic interest rate goes down.
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IS–LM model, displaying interest rates (i) on the y-axis and national income or production (Y) on the x-axis. Hansen's best known contribution to economics was his and John Hicks's development of the IS–LM model, also known as the "Hicks–Hansen synthesis." The framework claims to graphically represent the investment-savings (IS) curve and ...
The IS-LM model modified for endogenous money: The central bank controls interest rates but not the money supply. The LM curve is now flat, since, when the money supply increases, the interest rate r does not move. Income Y increases from ya to yb without any rise in interest rates.
The IS-LM model, created by Hicks (1937), is a tool for analysis that aims to condense a complex text like the GT into a straightforward model of three markets, one of which is residual. The LM curve depicts the equilibrium in the money market and uses output as an exogenous variable, while the IS curve portrays equilibrium in the goods market ...
In 1962, along with Marcus Fleming, he co-authored the Mundell–Fleming model of exchange rates, and noted that it was impossible to have domestic autonomy, fixed exchange rates, and free capital flows: no more than two of those objectives could be met. The model is, in effect, an extension of the IS/LM model applied to currency rates.
This model formalised an interpretation of the theory of John Maynard Keynes (see Keynesian economics), and describes the economy as a balance between three commodities: money, consumption and investment. Hicks himself wavered in his acceptance of his IS–LM formulation; in a paper published in 1980 he dismissed it as a ‘classroom gadget’. [9]