By popular request (well, David Andolfatto asked, but I think he's right to ask) I'm drawing a picture to illustrate my previous post on the distinction between the interest rate Rb you get paid for lending money and the interest rate Rm you get paid for holding money.
But first I need to take a short detour back to Micro 1000, where we show the effect of taxes on a supply and demand diagram.
A tax of $t per apple bought-and-sold creates a wedge between the price the buyer pays Pb and the price the seller gets Ps. Pb-Ps=t. Quantity demanded depends on Pb, and quantity supplied depends on Ps. There are three ways we can draw the supply and demand diagram. We can put Pb on the vertical axis and shift the supply curve vertically up by t. We can put Ps on the vertical axis and shift the demand curve vertically down by t. We can put both Pb and Ps on the vertical axis, and stick a vertical wedge of height t between the supply and demand curves to the left of the point where they cross. And we get the same answer either way.
OK, back to macro 2000. I now have two interest rates, Rb and Rm, and the spread between them Rb-Rm. Plus I have the added complication of the distinction between nominal and real interest rates, with the difference between them being the (expected) inflation rate.
This, I think, is the simplest way to draw the ISLM diagram.