What are the differences between these economics models?
Is IS/LM part of Keynesian model?
Answer:
IS/LM is not part of keynesian.
keynesian states that 1) AS is a horizontal line, and 2) prices are sticky. it 3) justifies government intervention, as "in the long term we are all dead", hence focusing on the short run and also a need for action on the government's part. 4) equilibrium can happen at any point, hence unemployment may be lower than the natural rate even at the equilibrium point. 5) keynesian views delibrate savings as bad for the economy, as the economy would then lack the funds for expansion, as contrast to other views, that suggests savings = investment.
classical says that 1) "market forces will equate itself back to equilibrium, and 2) government intervention is best minimised as it will cause unnecessary inflation. 3) AS is a vertical or upwards sloping curve, hence the shift of demand will bring up price level. 3) the market will move by itself, so there's no cause for worries when there is a surplus of supply over demand, or higher rate of unemployment than the natural rate.
3) monetarism explains that government intervention will at best cause higher prices yet lower output, or at best, inflation. this is because of the upwards slope of supply proposed by monetarists.
4) IS/LM states that investments and savings can be viewed as the demand and supply of loanable funds, respectively, and the interest rate affects whether there is more supply or demand, but it will balance itself back to equilibrium, because it takes on a more classical view with regards to the market forces, ie, interest rates affects how consumers decide to save or invest.
there are many differences among these models.
The economic system under classical system is supply creates its own demand. Money plays little role. Just more money supply means higher prices. Demand for money is effecting exchandes and is a fixed fraction of the total value of transactions.
Monetarism is the belief that by controlling money supply can influence the output and prices in the economy.in more significant way than other instruments of economic policy.
Neo Classical models assumes perfect markets for all commodities and equilibrium solutions for output and prices. Keynesian model assumes labour market characterised by downward rigidity of prices and infinite demand for money at very low rates of interest. IS-LM is an extension of the Classical and Keynesian model where the demand for money depends of both output (income) and interest rate and thereby integrates both real sector of goods and services and the money market. Its a kind of synthesis to a more generalised model.
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