ISLM MODEL

A macroeconomic tool that shows two intersecting curves called the investment/saving (IS) and liquidity preference/money supply equilibrium (LM) curves. It demonstrates the connection between interest rates and real output in the goods and services market, as well as in the money market. IS curve is a variation of the income/expenditure model that includes market interest rates (demand for this model), while LM curve displays the amount of money available for investing (supply for this model).