Kremer

Convergence

IS-LM Model

IS curve

\(Y = C + I + G\)
\(C = C(Y - T, i - \pi ^e)\) where T is taxes, i is interest rate, and the pi term is expected inflation
\(I = I(i - \pi ^e, Y_{-1})\) where the last Y term is expected income
\(G = \bar G\)
Thus, the solution to this component is