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MENTAL MODEL · M3520

IS-LM Model

IS-LM Model
BusinessHigh supportMacroeconomics
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Version 1.0.0 · Updated 2026-07-30

CORE DEFINITION

A Keynesian model developed by John Hicks, where the IS curve (investment-saving equilibrium) represents equilibrium in the goods market, and the LM curve (liquidity preference-money supply equilibrium) represents equilibrium in the money market. The intersection of the two curves determines the equilibrium interest rate and income level.

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Policy effect analysis. It provides a classic framework for analyzing the effects of fiscal and monetary policies. In policy discussions, it helps understand the mechanisms and interrelationships of different policy tools, supporting the use of policy mixes to achieve multiple macroeconomic goals.

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A Keynesian model developed by John Hicks. The IS curve represents equilibrium in the goods market (investment = saving), and the LM curve represents equilibrium in the money market (liquidity preference = money supply). The intersection of the two curves determines the equilibrium interest rate and income. The mechanism is **general equilibrium simultaneity**—fiscal and monetary policies shift the curves respectively, used to analyze policy effects.

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Source support: Explicit

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    en.wikipedia.orghttps://en.wikipedia.org/wiki/IS%E2%80%93LM_modelZH · Explicit
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