Intermediate Macroeconomics without the IS-LM Model

Akila Weerapana

The Journal of Economic Education, 2003, vol. 34, issue 3, 241-262

Abstract: The IS-LM model is the primary model of economic fluctuations taught in intermediate-level undergraduate macroeconomics. Recent works by Taylor and Romer make a strong case for an alternative model, known as the aggregate demand-price adjustment (AD-PA) or the aggregate demand-inflation adjustment (AD-IA) model, as a better model of economic fluctuations. The author argues that the AD-PA model is superior to the IS-LM model for teaching about economic fluctuations in intermediate macroeconomics. He compares the perfomance of the two models in teaching about two important issues in current macroeconomics: the ineffectiveness of monetary policy in stimulating the 1990s Japanese economy and the rapid switch of the U.S. Federal Reserve from contractionary policy to expansionary policy in 2001.

Date: 2003
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DOI: 10.1080/00220480309595219

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