Question

Describe in detail the similarities and the differences between IS-LM and AD-AS model. Write in your own words. There is no page limit.

Answer 1

Ans 4- The similarities of IS-LM and AD-AS model is

1. Both the models are given by prof Keynes.
2. Both the concept are under the macroeconomics.
3. Both the concepts are related with the aggregate variables of the economy.
4. Both the concepts are related with the investment in the economy.
5. Both the concepts are related with the aggregate policies of the government.

Differences between IS-LM and AD-AS model are as follows:

1. IS-LM model means the relationship between Inflation and rate of interest.
2. AD-AS model related with the aggregate concept of the household final consumption expenditure, gross domestic capital formation, government final consumption expenditure and the net exports.
3. IS-LM is related with the money supply in the economy and the AD-AS model related with the total income of the economy.
4. IS-LM model is very good is the determination of aggregate investment in the economy.
5. AD-AS model related to the determination of full employment equilibrium and under employment equilibrium and it also explain the inflationary gap and the deflationary gap in the economy. It also explain the two approaches of the determination of the full employment equilibrium in the economy i.e. with the help of AD and AS approach and the S and I approach.