Answer to Question #58441 in Macroeconomics for Justyna

Question

Consider the following IS/LM model for a closed economy without government.

Answer 1

The IS-LM (Investment Savings-Liquidity preference Money supply) model focuses on the equilibrium of the market for goods and services, and the money market. It basically shows the relationship between real output and interest rates.
At any point of IS and LM curves the equilibrium condition in the corresponding market is true, but only at the point where the two curves intersect, both equilibrium conditions are satisfied.