Intermediate Macroeconomic Theory/IS-LM Model

The IS-LM ModelEdit

The IS-LM model stands for "Investment / Savings Equilibrium" and "Liquidity Demand / Money Supply Equilibrium." These are two different curves, as we will see in moment, that represent a relationship between the goods market and the financial market. The IS curve is derived from the goods market and the LM model is derived from the financial market. We will explore each curve in turn and then combine the two to see how they interact.