An Addition to IS-LM

Economic GraphsThe following paper given in an associated download is a presentation of traditional IS-LM theory and the Quantity Theory of Money with some novelties attached.  It may be downloaded below or here.

Among its claims are

1.  The velocity of money is an interest rate.

2.  In a closed economy in equilibrium subsectors (firms, in this case) need not be.

3.  The neoclassical model of supply is incompatible with the Keynesian investment schedule I(r).

4.  Cutting wages to assure full employment is a meaningless concept.  Employment depends on the level of aggregate output.

5.  The distribution of  Fiscal Policy payments to support aggregate demand is important.  It is not a good idea to pay just anybody and rely on the multiplier effect.  Trickle down concepts are likely worse than useless.

6.  Implications are that running an economy at a low interest rate does not stimulate economic activity but the opposite:  Low economic activity, high unemployment, and anemic to no growth.

7. Implications are that maintaining a high, selective, level of aggregate demand encourages high economic activity, high employment, high growth.  High equilibrium interest rates are an indication of high real productivity and high rates of real growth.  Essentially, industry is forced to find things to produce and means that produce them which are more productive.  Low interest rates are a form of slacking off.

This writer hopes you all enjoy reading or skimming your way through the following.  It is expected that many posts in the future will refer back to this

paper.

Enjoy!

[gview file=”http://www.jwindices.com/wp-content/uploads/2014/06/ISLM.doc”]