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    United States 2020-05-06 01:34:45
    Technical index IS-LM Curve – Interest Rates and Economic Growth (

    Without going too far down the academic rabbit hole, there are two takeaways of the IS-LM model that carryover into understanding the Mundell-Fleming model.

    First, that the downward sloping IS curve demonstrates that as the level of interest rates fall, the level of economic activity rises. This is intuitive: the more readily credit is available, the more economic activity will flourish.

    Second, the upward sloping LM curve demonstrates that as economic activity rises, the level of interest rates rise too. This is also intuitive: stronger economic activity provokes inflation and higher bond yields in response.

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