Dynamic Analysis of IS-LM Business Cycle Model with Control
Arista Fitri Diana, Shafira Meiria Rahmasari

Institut Teknologi Statistika dan Bisnis Muhammadiyah Semarang
Sekolah Tinggi Agama Islam Al-Bahjah Cirebon

Abstract

The IS-LM business cycle model is a financial economics model that uses theory in economic and financial mathematics by applying a deterministic model that forms a dynamic system. The variables in the IS-LM model are income, capital stock, and interest rest. This article will discuss the non-linear function of the investment function, saving function, and money demand function by providing import control and the level of public consumption to increase income. Furthermore, local stability analysis was carried out with the Routh Hurwitz method. Meanwhile, to analyze the optimal control on the model using the Maximum Pontryagin Principle. The numerical results obtained state that the optimal control strategy given can increase revenue

Keywords: IS-LM business cycle model, dynamic model, equilibrium point, local stability analysis, optimal control

Topic: Mathematic