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National Income and Output Determination: The IS–LM Model

In: FINANCIAL THEORY Perspectives from China

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  • Xingyun PENG

Abstract

A person's individual spending has a minimal impact on the economic growth of an entire country, but the consumption of all individuals does have a major impact on economic growth. This is not only because consumption itself constitutes a major segment of aggregate demand, but also because changes in the marginal propensity to consume have a multiplier effect, which will multiply the impact of investment, government spending, and net exports on economic growth. In this chapter, we will analyze the determinants of national income and output, the impact of product market and money market on the national income equilibrium, and the role of fiscal and monetary policies in adjusting national economic imbalance. The contents of this chapter will provide the theoretical framework for the next chapter.

Suggested Citation

  • Xingyun PENG, 2015. "National Income and Output Determination: The IS–LM Model," World Scientific Book Chapters, in: FINANCIAL THEORY Perspectives from China, chapter 19, pages 479-499, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9781938134326_0019
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