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Reconciling the Models

Reconciling the Models. Liquidity Preference Model of the Interest Rate. AD-AS Model. Loanable Funds Model of the Interest Rate. LRAS. SRAS 2. MS 1. MS 2. SRAS 1. S 1. Agg . Price Level (PL). Interest Rate (r). Interest Rate (r). PL 3. S 2. PL 2. r. r. PL 1. r 1. MD 2. r 1.

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Reconciling the Models

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  1. Reconciling the Models Liquidity Preference Model of the Interest Rate AD-AS Model Loanable Funds Model of the Interest Rate LRAS SRAS2 MS1 MS2 SRAS1 S1 Agg. Price Level (PL) Interest Rate (r) Interest Rate (r) PL3 S2 PL2 r r PL1 r1 MD2 r1 MD1 AD2 D AD1 M1 M2 Q1 Q2 Y1 Y2 Quantity of money Quantity of loanable funds Real GDP (Y)

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