| Learning Objectives |
The IS-LM model depicts the causes and consequences of
simultaneous equilibria within the product market and the money market. A
graphical system visually demonstrates how an equilibrium level of income
established in the product market interacts with the equilibrium rate of
interest determined in the money market. Each market equilibrium and
disequilibrium adjustments may be analysed using a four-quadrant diagram
to ascertain the effects of fiscal and monetary policy instruments.
Get a graphical depiction of the simulation results for an IS-LM econometric model (with hypothetical parameters). The goods market (IS) and the money market (LM) are solved using a system of simultaneous equations with a very simple structural specification and the set of parameters selected in the menu. Graphs of the four quadrant diagrams for the IS or LM systems may be viewed or the resulting IS-LM equilibrium (upper right hand-quadrant of both systems) may be inspected.
The equilibrium established in the product market or, money market, is depicted using the four quadrant diagrams. Each equilibrium condition may be subjected to scrutiny using either the four quadrant IS or LM systems or, the super-equilibrium of both markets may be viewed using the upper right-hand quadrants of both systems. This super-equilibrium shows how both market equilibria will converge to a single equilibrium rate of interest and equilibrium level of income.A single interest rate abstracts from the term rate structure where, the long rate might best be used for the IS whilst, the short rate is attuned to the LM.