Question

1. What are the primary uses of the IS-LM model to economic analysts?  What are the model’s limitations that must be understood in using the model for this analysis, especially of inflation?

Answer 1

Investment Saving and liquidity preference money supply model is give gist about market interest rates and it's relationship with gdp growth and this also keep in mind Market prefernce and investment saving effect on market equilibrium in regards of goods as investment saving effect production .

Limitations:

1) It is not keeps in mind the the time-lags which are important to examining the effects of economic policy changes and their implementation as we know any policy of government and resrve Bank of that country is impact inflation in that country by supply and thus time lag is important to know about inflation change in future.

(b) this is the fix-price model and not focus much more on fluctuating prices and it's effect on economic variable like saving investment etc.

inflation is mainly related to fluctuations in prices while this model is more focus on fixed prices and thus this is not good to study about inflation pattern or change in economy.