Theoretical Analysis of News Article A Working Model: Is the World Experiencing Excess Saving or Excess Liquidity?

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The considered article is chosen from The Economist, dated 11th of August 2005 with the title “A working model” – Is the world experiencing excess saving or excess liquidity?
In purpose of this article is to present the understanding of IS-LM model in macroeconomics by these are the convergence of two economic graphs, one representing the income and savings (IS0 and other liquidity and money (LM).
Article Summary
In this article, author defines the so-called IS-LM framework aggregate macroeconomic model that has the intuition use to describe money and markets. The author has also focused on the role of IS-LM model and its relation with the interest rate, short-term rates, monetary policy and the unusually expansion of
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Businesses like consumer reduces their investment due to interest rate increase. This increase in interest rate reduces the current income/output as consumers and investors reduce consumption and investment.
Generating the LM curve
The author made assumptions that the money supplied is a fixed quantity in the short-run due to the fact that the demand for money is a function of prices, income and the interest rate. Using the equilibrium in the market the LM curve can be derived as shown in the graph which will show the relation (Thoma, 2013).
Figure 2: Relation between interest rates and output

As the graph reflects the increase in income (Y) increases in the demand of money. Very similar to the IS curve, the relation is captured by plotting the income (Y) on the X-axis and the interest rate on the Y-axis, this jointly relation that deprived from the market is called the LM curve.
The author tried to justify the fact but these two theories are not mutually exclusive as the rising income leads to higher demand of money that will affect the LM curve. He focuses mainly on the short-term analysis of the matter and reflects the after math of the monetary policy of US that has deprived by domestic liquidity and the settlements.
However, the author has given relevant explanations about the IS-LM combination with the inflation effects with cheap
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