Money
IS-LM Model
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The IS-LM model is a popular macroeconomic framework that explains how interest rates and national income are determined in the short run.
The IS (Investment-Savings) curve represents goods market equilibrium. It shows an inverse relationship between interest rates and national income — lower interest rates boost investment, which increases income.
The LM (Liquidity-Money) curve represents money market equilibrium. It shows a positive relationship — as income rises, money demand increases, pushing up interest rates.
Where the IS and LM curves intersect, the economy is in equilibrium. This model is widely used to analyze the effects of fiscal and monetary policy changes.