Macro models in a graph representation

"Do you see?" is a synonym for "do you understand?" in many languages.
"A picture is worth a thousand words" (American proverb, 1927).
"Seeing it once is better than being told 100 times" (Zhou Chongguo, Han dynasty).

OK let's just agree that diagrams and graphs are pretty effective explanatory devices.

IS-LM diag&graph Here's the standard representation of an IS-LM model.

To use it you must know how the curves shift when an exogenous variable changes, e.g. government spending increases and shifts the IS curve to the right.

... and here's an alternative representation of the same model, as a qualitative causal graph.

The arrows and the signs of the effects allow a causal story to unfold.

This is a non-standard representation, but I think you'll agree it has explicative power.

This representation is quite natural for macroeconomics because the economy comprises sets of interacting systems and subsystems.

The links on the left give more details.

Geoff Wyatt     -- about me
2nd September 2006