IS–LM Model: Equation Cheat Sheet

Goods Market (IS Framework)

National Income Identity

= national income / output
= consumption
= investment
= government spending
= net exports

Goods Market Equilibrium (IS Relation)

: investment increases with income (), decreases with interest rate ()
IS relation: all such that (goods market equilibrium)

Consumption Function

= autonomous consumption
= marginal propensity to consume (MPC),
= taxes
= disposable income

Investment Function

= autonomous investment
= sensitivity of investment to interest rate
= interest rate

Planned Expenditure

Goods Market Equilibrium (Key Condition)

IS Curve (Reduced Form)

IS Curve (Rearranged for )

Money Market (LM Framework)

Money Market Equilibrium

= nominal money supply
= price level
= real money supply
= money demand

Linear Money Demand Function

= sensitivity of money demand to income
= sensitivity of money demand to interest rate

LM Curve (Reduced Form)

LM Curve (Rearranged for )

Key Signs (Exam Critical)

IS slope:
LM slope:

Core Equilibrium (IS–LM Intersection)

Simultaneously:

Determines:

Equilibrium output:
Equilibrium interest rate:

Ultra-Compact Memory Triggers

IS: goods market → demand-driven → downward slope
LM: money market → liquidity vs return → upward slope
Intersection → joint equilibrium