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Recently in a test I was asked to describe the modified IS-LM framework. I assumed I was being asked the IS-LM-BP model, since it modifies the traditional IS LM model by adding a BP curve.

I looked up on a couple of references (Macroeconomics by Dornbusch, and Macroeconomics by Olivier Blanchard) but they have no reference to it. Looking the term up on a search engine only throws results about papers that suggest a modification to the IS LM model.

What exactly is a modified IS-LM framework?

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There is no universal definition of a modified IS-LM framework. There are several modifications out there. Some such modifications include adjusting the model to capture the last financial crisis or opening the economy with the BP curve as you said, or more explicitly considering the role of banks. Another modification is the IS-MP model, which represents a more realistic version of monetary policy.

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  • $\begingroup$ does anyone know of a nice explanation of the not modified IS-LM framework ? Thanks. $\endgroup$ – mark leeds Jan 14 '19 at 8:38

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