Congrats! You’ve mastered the IS and LM functions! Now, it’s time to piece them together so that we can study the economy as a whole and predict what happens when the government implements certain policies!
More specifically, the policies that we’re talking about today are FISCAL policies. What are fiscal policies? They are actions by the government which include increasing/decreasing their spending or taxes. Governments do such things to either promote growth in the economy or to make the economy’s growth shrink to fight inflation. When the government increases their spending/decrease taxation to boost the economy, that’s called an expansionary fiscal policy! When the government decreases their spending/increase taxation to cool down the economy, that’s called a contractionary fiscal policy! Easy right?
So that’s what you’re going to learn in this video. You will discover how the ISLM model works hand in hand to keep the economy in equilibrium. You will also see how the goods market and the liquid assets market work in their respective settings!
At the end of this video, you should be able to:
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