The paper "Beyond Keynesian Economics" is a great example of a report on macro and microeconomics. The development of macroeconomics was purely based on ideologies and economics; a methodological revolution that was meant to find impeccable solutions to the Great depression (Plosser, 1989). According to Bose (1989), “ From the 1950s onwards, Keynesian macroeconomics established itself as a new sub-discipline of economics and the predominant use of the IS-LM model became a baseline analytical tool” . Cooper and John (2012), in his book Theory and Applications of Macroeconomics(pp 123) explains the IS-LM model as an analysis tool gives a deeper overview of the aggregate demand (AD) that represents the equilibrium balance in output and interest rates resulting from the equilibrium in the money market and the goods.
In IS-LM, equilibrium in investment and saving (IS) represents the goods market while liquidity preference and money supply (LM) represent the money market. As an economic analysis tool, the Mundell– Fleming model is an extension of the IS-LM model. With this model, the economy can be analyzed from an open perspective, unlike the traditional IS-LM model which is closed and provided rigid analysis.
The short-run relationship that occurs between an economy’ s nominal exchange rate, the output, and the interest rate is best portrayed in the Mundell-Flemings model. On the contrary, Mankiw and Taylor (2008) in his studies provide that the IS-LM model focuses on how the output relates to the interest rate which makes it a weak analysis tool. The overriding issue therefore has revealed how macroeconomics analysis can be done by the Mundell-Fleming model in maintaining an independent monetary policy, fixed exchange rates, and free capital movement. Phillips curve is an economic analysis tool that gives a relationship between unemployment rates and economic inflation.
It is as historical as the IS-LM model compared to the Mundell-Fleming model. With the Phillips curve, an inverse relationship where an increase levels of employment results in a decrease in inflation in an economy. However, according to Keynes (1936), the analysis of the Phillips curve does not provide a precise relationship between unemployment and inflation since it is only realized in the short run. Accordingly, the Phillips curve proves not to be strong enough based on the fact that unemployment basically is predictably in the short run by the money supply measures.
Mankiw, N and Taylor, M (2008), Macroeconomics European Edition, New York: Worth
BBC (2014), The Depression of 1930s, available at
http://www.bbc.co.uk/schools/gcsebitesize/history/mwh/britain/depressionrev1.shtml (accessed on 20th April 2014)
Byrne, D. (2006), The Great Depression A Monetarist View, available at
http://www.csus.edu/indiv/v/vangaasbeckk/courses/145/sup/Byrne.pdf (accessed on 20th April 2014)
Cooper, R. and John, A. (2012), Theory and Applications of Macroeconomics, available at
http://2012books.lardbucket.org/books/theory-and-applications-of-macroeconomics/s20-macroeconomics-toolkit.html (accessed on 20th April 2014)
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Bose, A (1989). Short Period Equilibrium in Less Developed Economy. Studies in the
Macroeconomics of Developing Countries pp 26-41.Delhi: Oxford University.