Macroeconomic Stability with a Positively Sloped IS Curve: A Further Examination

The Modigliani stability condition states that the slope of the LM curve must be algebraically greater than that of the IS curve for economic stability to occur. This paper mathematically demonstrates that this theorem's validity does not necessarily guarantee stability for the macroeconomic system if the aggregate price level is a variable. Thus, the Modigliani stability condition may not be generalized beyond the scope of a crude IS-LM model having only income and the interest rate as endogenous.