The Keynesian IS-LM Model

factors affecting the IS curve

autonomous spending = A

marginal propensity to consume = c

marginal tax rate on income = t

sensitivity of investment to interest rate = b

factors affecting the LM curve

real money supply =

M

P

sensitivity of money demand to income = k

sensitivity of money demand to interest rate = h

A

850

c

0.8

t

0.1

b

100

M

P

100

k

0.1

h

100

The IS-LM model is a graphical representation of a Keynesian model of the macroeconomy. The model solves for equilibrium in both the goods market and the money market, taking certain parameters as given. The IS line represents the goods market, and the LM line represents the money market.