IS-LM MODEL

IS-LM model and domestic economy



IS-LM model and domestic economy

IS-LM model shows the openness of the economy arises in several ways. The sources of aggregate demand may be abroad: that is, we may export some of the goods and services produced here. In addition, home demand may be for foreign goods and services: we may import some goods and services from abroad.

The borrowing and lending involved may be long- or short-term. In general terms, the stock of financial wealth held by domestic households and firms will include some foreign assets of varying liquidity. (In what follows we shall assume ...