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Answer to Question #65121 in Macroeconomics for Puspa Tripathy

Question #65121
What do the IS and LM curves signify? Why is it called the neoclassical synthesis?
Expert's answer
IS–LM model shows the relationship between interest rates and assets market (real output in goods and services). IS is a curve that means "investment–saving" and "liquidity preference–money supply" is curve LM and these curves is models "general equilibrium" where supposed simultaneous equilibrium occurs in both interest and assets markets. We can say that this model is neoclassical synthesis, because IS-LM model is macroeconomic tool, that combines the macroeconomic thought of John Maynard Keynes into the thought of neoclassical economics.

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