Answer to Question #268448 in Macroeconomics for shon

Question

how does an increase unemployment affect the is lm model macroeconomics. use diagrams

Answer 1

The IS-LM model appears as a graph that shows the intersection of goods and the money market. The IS stands for Investment and Savings. The LM stands for Liquidity and Money. The IS-LM model attempts to explain a way to keep the economy in balance through an equilibrium of money supply versus interest rates.

Fiscal policy has no direct effect on the LM curve. Increased government spending or a tax cut is assumed to be financed by borrowing. The money supply does not change, so the LM curve does not change.

In the IS-LM model high unemployment is a temporary phenomenon caused by sticky wages and prices.