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Equilibrium and Disequilibrium Interpretations of the IS-LM Model

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  • Gary Smith

Abstract

There is a considerable tension in neo-Keynesian macroeconomics as to whether the familiar IS-LM analysis should be interpreted as a description of equilibrium or disequilibrium. The present paper shows how the IS-LM model can be used for either purpose. The first section provides the preliminaries for the model of disequilibrium behavior that I will use. The second section lays out the sectoral notional and effective demands. The third section gives the equilibrium solution while the fourth and fifth sections give excess supply and excess demand solutions respectively.

Suggested Citation

  • Gary Smith, 1977. "Equilibrium and Disequilibrium Interpretations of the IS-LM Model," Cowles Foundation Discussion Papers 461, Cowles Foundation for Research in Economics, Yale University.
    • Handle: RePEc:cwl:cwldpp:461
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    File URL: https://cowles.yale.edu/sites/default/files/files/pub/d04/d0461.pdf
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