This week Nobel Prize winner and resident economics columnist Robert E. Lucas answers your questions about the IS-LM model. IS-LM is a way of modeling changes in equilibrium in both the goods and money markets.
   
   
    Q: I have an IS-LM Model, but there is a sudden equal increase in both government spending and domestic taxes. What should I do?
   
    A: The equal increase in government spending and taxes shifts the IS curve to the right (by the amount of the equal increase). This raises the interest rate at every exchange rate domestically which implies GE_D shifts UP. Result: interest rates and exchange rates rise. The increase in the rate of exchange lowers net exports causing the IS curve to shit LEFT, but not back (or beyond) its original position. Therefore output increased and investment decreases. Also consumption falls because disposable income fell, since the increase in output is less than the increase in T because of the balanced budget multiplier.
   
    This is a simple, obvious question and I'm insulted not that you had to ask it of me, but that someone of your diminutive intellectual stature made attempt to have personal contact with me in any way, and I shudder in fear that someday such contact may be furthered and I may be forever contaminated by your wretched image. I can't imagine what kind of pathetic faggot you must be, there are worms in my stool that could answer this question without even using a calculator. Please, your type is better suited to a self-contradicting band of suicidal ecoterrorists.
   
   
    Q: If a government increases saving, doesn't the "crowding out" effect of raising interest rates hurt private borrowing?
   
    A: The crowding out effect will be less than the benefit of the increase as long as the policy is unanticipated. Unless you are a monetarist, but monetarists can just lick my fucking balls. Monetarists think that crowding out occurs and will exactly offset the benefits of the policy and are generally a bunch of whiny, neutered faggots. Believe you me.
   
   
    Q: Why are there periods of entropy and decline in economies of all varieties?
   
    A: That's a very good question and one which is hard to answer, especially for an economist! I will try to do my best.
   
    The New Classical school says that inflation is the only cause of these fluctuations. The business cycles emerge as a result of changes in people's willingness to trade off work and leisure between the present and the future. This occurs as a result of anticipated changes in the relation between the current and the future real wage rate, thus inflation is the culprit.
   
    Keynesians say wages are sticky and depend on businesses' expectations of future wage values and not workers, who possess less information than firms. So, inflation is the root.
   
    Neo-Keysians say that businesses experience unemployment purely because of the unlikely equilibrium between the expectations of firms and their workers of the real value of their wages now. Base on this theory we can conclude than inflation is what causes these cycles.
   
   
    Q: So then why are there business cycles when there is no inflation?
   
    A: Go fuck yourself.
   
   
    University of Chicago scholar Robert E. Lucas Jr. won the 1995 Nobel economics prize for deciphering how people's expectations of the future affect economies. He is our resident economics columnists helping people solve important questions in their demand theory models and with their daily lives. Contact him at lucas@dailysedative.com