IS-LM-PC Analysis
The IS (Investment Saving), LM (Liquidity Preference- Money Supply), and PC (Philips Curve) is the model that looks at the dynamics of output and inflation. It takes into account the central bank policy decision to adjust the inflation and real interest rate in the economy. It enables the economist to weather to priorities between employment and inflation rate analyzing the model. It is a practice-driven approach adopted by economists worldwide.
IS-LM Analysis
The term IS stands for Investment, Savings, and LM stands for Liquidity Preference, Money Supply. Therefore, the term IS-LM model is known as Investment Savings – Liquidity preference money Supply. This model was introduced by a Keynesian macroeconomic theory which shows the relationship between the economic goods market and loanable funds market or money market. In other words, it shows how the market for real goods interacts with the financial markets to strike a balance between the interest rate and total output in the macroeconomy. This particular model is designed in the form of a graphical representation of the Keynesian economic theory principle. The output and money are the two important factors in an economy.
Describe the gold standard monetary system.
Monetary system refers to the system within which the government circulates the money in the domestic currency. Also the system is strongly related to the international market and the monetary system of the country helps in payments and receipts internationally. It may consists all the money backed institutions, minting, currencies, etc.
Gold standard monetary system was a system under which the country’s fixed their value of the currency in gold. All the transactions, minting and other activities were carried out in the terms of gold. But this system was not relevant after some time as there occurred problems in the same regarding the economic status of the countries. Exchange rate would not be set with gold and so the system was discarded as gold is not so liquid too.
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