Macroeconomic Model:

The celebrated  IS model,  or goods market equilibrium model of macroeconomics in its non-stochastic form can be expressed as  

In order to solve the above equation system. Consequently we obtain

Equation is the equation of the IS cuze, or goods market equilibrium, which provides the combinations of the interest rate and level of income such that the goods market is in equilibrium.

What would happen  if we were to estimate, say, the consumption function in isolation? Could we obtain unbiased and/or consistent estimates of β₀ and β₁? Such a result is unlikely because consumption depends on disposable  income, which depends on national income  Y;  but  the  latter depends on  r  and  G  as well  as the other parameters  entering  in Π. Therefore, unless we  take into account  all  these influences,  a  simple  regression of  C  on  Y_A  is  bound  to  give  biased  and/or
inconsistent estimates of β₀ and β₁.