By the end of this chapter, students should be able to:
- Explain this equation: Y = Yad = C + I + G + NX.
- Provide the equation for C and explain its importance.
- Describe the Keynesian cross diagram and explain its use.
- Describe the investment-savings (IS) curve and its characteristics.
- Describe the liquidity preference–money (LM) curve and its characteristics.
- Explain why equilibrium is achieved in the markets for goods and money.
- Explain the IS-LM model’s biggest drawback.