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Read the article and write your thought.


In many ways, the macroeconomics profession has come full circle, because many years ago the predominant model in the profession was the standard IS-LM model (one without microeconomic foundations). In the attached article, Paul Krugman defends the old school IS-LM model, arguing that it offers many valuable insights in a transparent fashion. While this article is somewhat dated, Krugman has written more recent papers and given speeches with a similar theme – basically that old school IS-LM can address most macroeconomic issues.

What are your thoughts? Is developing the full intertermporal framework worth the bother, or should we just use standard old school IS-LM? In particular, after all this work developing microeconomic foundations, we pretty much end up using an IS-LM model anyways. Does inclusion of microfoundations within the model really buy us anything?

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