IS/LM model

The IS/LM model is a tool that shows the relationship between interest rates and real output in "the goods and services market" and "the money market". IS/LM model is used in Macroeconomics. The point of meet of the IS curve and the LM curve is "general equilibrium". At general equilibrium, there is same equilibrium in both markets. The letters I and S of the IS curve express Investment-Saving. The letters L and M of the LM curve express Liquidity preference—Money supply. This model makes clear an effect of either a fiscal policy or a monetary policy.

IS/LM Model Media

The IS curve moves to the right, causing higher interest rates (i) and expansion in the "real" economy (real GDP, or Y)
IS curve represented by equilibrium in the capital market and Keynesian cross diagram.
The money market equilibrium diagram.

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