Overview
The IS-LM model is a standard model used by economists to explain short term economic fluctuations. It is considered as an interpretation of Keynes analysis of aggregate demand and economic downturns.
IS-LM Components
The IS-LM model is built from several components.
- Keynesian Cross : is a model of total national income, which it ties back to planned expenditures.
- IS Curve : the IS curve relates total investment spending to the level of interest rates.
- LM Curve : relates the quantity of money demanded to interest rates and national income.
- Aggregate Demand :