Answer to Question #219938 in Macroeconomics for Gauta

Question

Explain endogenous and exogenous variables in the IS-LM model as well as the labour markets, derive the AD-AS model.

Answer 1

The 3 exogenous variables within IS-LM model include investment, consumption and liquidity. Based on the theory, liquidity depends on money supply's velocity and size. Consumption and investment levels are based on marginal decisions as per the individual actors.

Endogenous variable tend to be a variable which is determined or changed through its linking factors with the rest of the variables within statistical model. Similarly, endogenous variable correlates with other aspects within the area.