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MENTAL MODEL · M5490

IS-LM Model

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

CORE DEFINITION

Combining the goods market (IS curve) and the money market (LM curve), it explains how interest rates and national income reach equilibrium simultaneously. It is the theoretical blueprint for Keynesian economic policy (fiscal + monetary).

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A dashboard for macroeconomic policy. Despite its limitations, it provides a clear framework to deduce policy consequences: government spending (shifting IS) pushes up interest rates; central bank money creation (shifting LM) lowers interest rates. It is an introductory navigation for understanding macroeconomic fluctuations.

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The Hicks-Hansen model, i.e., the IS-LM model, uses two curves—goods market equilibrium (IS) and money market equilibrium (LM)—to depict how short-run interest rates and output are jointly determined by saving-investment and money supply-demand. It is the geometric expression of Keynesian macroeconomics.

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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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