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Chapter 21 IS-LM

Chapter Objectives

By the end of this chapter, students should be able to:

  1. Explain this equation: Y = Yad = C + I + G + NX.
  2. Provide the equation for C and explain its importance.
  3. Describe the Keynesian cross diagram and explain its use.
  4. Describe the investment-savings (IS) curve and its characteristics.
  5. Describe the liquidity preference–money (LM) curve and its characteristics.
  6. Explain why equilibrium is achieved in the markets for goods and money.
  7. Explain the IS-LM model’s biggest drawback.