%0 Journal Article
%A Costa Junior, Celso José
%A García-Cintado, Alejandro
%T Adding an informal sector to the IS-LM framework: A graphical exposition of the IS-LM-PC-SE model for the classroom and policymaker
%D 2024
%U https://hdl.handle.net/10433/20922
%X Economic policies have been shown to affect the macroeconomy in a different fashion when a sizeable shadow economy is explicitly taken into account. But, in spite of its seemingly high relevance, no intermediate-Macroeconomics textbook posits a discussion on this topic. In this paper, we seek to make a contribution by extending an otherwise conventional IS-MR-PC model along the same lines of the approach used in Blanchard’s highly acclaimed textbook (Blanchard, 2016a) to include an informal sector. We find that this two-sector model is capable of qualitatively reproducing the main basic results obtained in this literature. Therefore, importantly, this work provides a toolkit intended for undergraduate students, practitioners, policymakers, and, in general, nonspecialists on the cost-benefit analysis of economic policies in the presence of a significant underground economy.
%K Undergraduate macroeconomics
%K Nonspecialists
%K Fiscal policy
%K Fiscal adjustments
%K Shadow economy
%K Tax evasion
%~