Learn The IS-LM Model
Keynes proposed that low aggregate demand is responsible for the low income and high unemployment that characterize economic downturns. Indeed, in the short run, prices are sticky, so changes in aggregate demand influence income. Keynes’s ideas about short-run fluctuations have been prominent since he pro- posed them in the 1930s, but they have commanded renewed attention in recent years. The model of aggregate demand developed in this course, called the IS–LM model, is the leading interpretation of Keynes’s theory. The goal of the model is to show what determines national income for a given price level.