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economics · finance

Central Bank Rate Policy — IS-LM

This IS-LM graph summarizes two linked parts of a macroeconomic model. The downward IS curve represents combinations of income and interest rates that balance the goods market. The upward LM curve represents combinations that balance the money market. Where the curves meet, the model identifies a joint equilibrium for output and the interest rate. A policy discussion can then show a curve shifting in response to a change in spending, taxes, money supply or liquidity preference. The graph is an analytical simplification. It is most useful for explaining relationships and direction of change, not for producing a precise interest-rate forecast.

Type econ-is-lmEngine econ-is-lmUpdated 9/24/2026
Central Bank Rate Policy — IS-LM
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The request

“Create an IS-LM graph titled Central Bank Rate Policy with an IS curve intercept of 12 and slope minus 1, and an LM curve intercept of 2 and slope 1.”

Then tryShift the LM curve right for easier money.Add labels for goods and money market equilibrium.
What is in this drawing

Read the decisions behind it.

01IS curve

represent goods-market balance.

02LM curve

represent money-market balance.

03Intersection

identify joint output and rate equilibrium.

Use this model to explain introductory monetary and fiscal policy mechanics.

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FAQ

Common questions

What is the IS curve?

It shows income and interest-rate combinations consistent with goods-market equilibrium.

What is the LM curve?

It shows income and interest-rate combinations consistent with money-market equilibrium.

What does their intersection show?

It shows the output and interest-rate combination where both modeled markets are in equilibrium.