AD–IA model: Difference between revisions

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Revision as of 15:58, 5 July 2010

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The '''Aggregate Demand-Inflation Adjustment model''' builds on the concepts of the [[IS/LM model]] and the [[AD-AS model]]s, essentially in terms of changing interest rates in response to fluctuations in inflation rather than as changes in the money supply in response to changes in the price level.

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This model is further advanced in higher levels of undergraduate studies.

Economist David Romer proposed in the ''[[Journal of Economic Perspectives]]'' in 2000{{cn}} that the LM curve be replaced in the [[IS-LM]] model. Romer suggested that although the Federal Reserve uses open market operations to impact the federal funds rate, they are not targeting money supply, but rather the interest rate. Therefore, he suggests removing the LM curve and replacing it with the MP curve.

== Related Models ==