Is there an IS-LM Curves For Dummies?

[koganbot]

My understanding of economics is so primitive that I don't even have a good idea of what I need to know but don't. But beyond the basic "supply and demand" stuff, I'd say the crucial concepts one needs to understand right now are (a) cumulative advantage and (b) IS-LM curves. The first I grasp so well - or think I do, anyway - that I wrote about it

Comments

[anonymous]

I'd say start by studying a money market diagram, which basically informs the LM curve. If you understand that, then you will start to understand the LM curve much more. IS/LM is really tricky, but it's also really useful in general discussions of monetary policy and such... it's worthwhile to learn, but definitely takes time to fully grasp.

Also, when they say "interest rate", they basically mean general market interest rates. It's a catchall, really, for bonds.

The Fed screws around with money supply through open market operations - buying or selling bonds to the public - and this affects a variety of different interest rates, which are all put under the umbrella of "interest rate". This stuff gets a little confusing, and there's a lot of things in the banking system to study in order to understand exactly why the Fed can do this.

There seems to be more than one diagram

[koganbot]

Thanks for posting.

So, I'd say your answer to the question I posed in the title - "Is there an IS-LM Curves For Dummies? - is "No."

What's a good textbook that discusses IS-LM curves?

When I Google "Money Market Diagram" I get a whole lot of different diagrams.

Re: There seems to be more than one diagram

[anonymous]

Well, of all the books I've had that have explained IS-LM, i'd go with Frederic Mishkin's "Money, Banking, and Financial Markets". Which... if you can get your hands on it, explains things pretty damn clearly. There's a lot of chapters that explaining stuff that leads up to the IS-LM, and then a few on IS-LM itself. I wish I could do it here, but it's kind of hard to do without diagrams and a lot of time.

Sorry for the late reply.

Re: There seems to be more than one diagram

[koganbot]

Thank you.

Drives me nuts too

[anonymous]

Found this page after I typed 'ISLM for dummies' in google. Drives me crazy as well. Glad to see someone else struggling.

I dont get the very last bit:
increase the supply of money and the interest rate must fall to induce people to hold a larger quantity

Why 'induce'. If you shovel out more money, interest rates (price of money) go down; but this is caused by the supply and demand for money, not as something being done to 'induce' people.

Re: Drives me nuts too

[koganbot]

Thank you for dropping by.

I actually got that Mishkin book that a commenter had recommended, got it through Inter Library Loan, but it turned out that what I'd ordered was the Business School Edition - which leaves out the IS-LM chapters as being not directly relevant to the students' interests. He recommends that those interested in that stuff get the regular edition.

But we're in luck. To compensate for this omission, he makes those chapters available on the Web! Prince of a fellow he is. Here's his site:

http://www.pearsonhighered.com/mishkin

Look for the Business School 2nd edition, go to "Companion Website," and then to "Student Resources."