In Keynesian Economics equilibrium is reached at a point where Ad equals AS. On the Other hand for equilibrium Consumption must equal Investment given the fact that S = I. The rete of interest which ...

In Keynesian Economics equilibrium is reached at a point where Ad equals AS. On the Other hand for equilibrium Consumption must equal Investment given the fact that S = I. The rete of interest which is the major determinant of Investment is determined in Money Market. It is therefore essential that at equilibrium all these markets should be in equilibrium. IS LM explains simultaneous equilibrium in all the markets.

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