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Q. Explain about IS-LM-model?
The key difference between the IS-LM model and the cross model is that nominal interest rate is exogenous in cross model on the other handit is endogenous in the IS-LM model. Now we will explain how the nominal interest rate is determined in the IS-LM.
P remains constant and exogenous in the IS-LM model. Consequently, inflation and expected inflation is zero. This in turn suggests that the nominal interest rate is equal to the real interest rate: R = r. This will allow us to talk about "the interest rate" without specifying whether we mean the real or nominal interest rates.
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