Mr. Keynes, Prof. Krugman, IS-LM, and the End of Economics as We Know It
Krugman has recently revitalized IS-LM with a number of succinct analytical pieces on his blog. The reverberations were remarkable. Economists, however, are known often not grasp the full content of their own and, a fortiori, of others’ models. This happened to Keynes in the days of high theory and to Krugman in these days. Keynes applied a defect formalism, which is here replaced by objective-structural axioms. This yields the correct relationship between retained profit, saving, and investment which in turn makes it clear after the event that the IS-part of the IS-LM construct never could bear any substantive theoretical load.
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7550, National Bureau of Economic Research, Inc.
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- repec:eap:articl:v:41:y:2011:i:3:p:147-168 is not listed on IDEAS
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32421, University Library of Munich, Germany.
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- repec:cup:cbooks:9780521641739 is not listed on IDEAS
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