1298 Words6 Pages

Dan Hill
AAEC 8210
December 1st, 2015
Hicks and the IS-LM Curve While J.R. Hicks received the Nobel Prize for many of his accomplishments in both macroeconomic and microeconomic research, his development of what he then called the SI-LL model, but is now more famously known as the IS-LM model, was one of his greatest feats. The IS-LM model was Hicks’ reduction of aggregate demand analysis done by John Maynard Keynes in his book titled The General Theory of Employment, Interest, and Money published in 1936. The model’s purpose was to explain investor decisions dependent on money availability and interest rates in the goods and services market and assets market. The IS-LM model now plays an integral role in both general macroeconomic understanding and policy analysis. IS-LM stands for investment-savings and liquidity-money, and can be represented graphically by a downward sloping curve for IS and an upward sloping curve for LM. In the IS curve, anywhere along the curve represents a point where interest rate and income satisfy that total spending equals the economy’s total output (real income). Total spending/demand is determined by adding together consumer expenditure, investment, government expenditure, and net exports (investment being the only endogenous variable among the four). In this equation, the assumptions are that; consumer spending is increasing with more disposable income, investment is increasing as interest rates increase, and exports are increasing with

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