Is curve represent equilibrium in the goods marked deriving from the loan able funds formation. It is a curve which explains the relationship between families of savings schedules. (IS curve shows the quality or savings and investment at various dominance of levels of income the rates of interest)
LM curve represent equilibrium in the money marked showing combination of interest rates and levels of income at which demand or the supply of money an equal.
IS-LM curve shows intersections of IS and LM curves. It determines the output and interest rate in the short run in a given price.
1. To find out what is IS and LM curves
2. To find out the impact of IS-LM curve in the economic analysis
3. To find out how interest rate is determinate
4. To find out the relationship between income and interest rate in IS-LM curve
Statement of the problem
The is-lm model is based upon the income of the country it is measured in terms of asset market (money and bond market) and goods market therefore money and fiscal policies are involved to determine the interest rates of changes on income, savings and investment of a country.
The changes of interest rate have got important side effects on the fiscal policies by rising the interest rate leads to the composite aggregate demand on interest rate charged the higher the interest rate this leads to aggregate demand though reduced investment. Fiscal policy raises consumption through multiplier but reduces investment hence rates are raised
The rate of investment affects growth of the economy hence side effects of the physical expansion be sensitive & important issue in policy making this is useful in macroeconomic analysis since such problems affects the economy.
IS-LM curves are ideally very important in the economic analysis as seen in the great economic depression in 1930s where john Maynard Keynes came up to solve the the issue and he said ‘if the animal spirits are dimmed and the spontaneous...