Title

Equilibrium and Disequilibrium Interpretations of the IS-LM Model

Authors

Gary Smith

Document Type

Discussion Paper

Publication Date

8-1-1977

CFDP Number

461

CFDP Pages

32

Abstract

There is a considerable tension in neoKeynesian 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.

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