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Compare and contrast, the assumptions, the predictions and the policy implications of the IS/LM model with those of the New Classical model
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There is no universal agreement among economists as to how the economy functions at a macroeconomic level. In stead there are various schools of thought. Theses schools of thought see very different roles for the government in managing various macroeconomic objectives. There are various models and theories which try to elucidate the economy/markets. There are two key markets in which both fiscal and monetary policy operate. The first is the goods market and the; the second is the money market. Each of theses markets can be analysed using the IS-LM model. The goods market, uses the Keynesian injections (investments) /withdrawals (savings) model (IS model). Fiscal policy operates directly in this market. In the case of the money market, the model is the one showing the demand for money (L) and the supply of money (M) and their effects on the rate of interest. Monetary policy operates directly in this market, either by...
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