If you're seeing this message, it means we're having trouble loading external resources for Khan Academy.

If you're behind a web filter, please make sure that the domains *.kastatic.org and *.kasandbox.org are unblocked.

IS-LM Model

5 videos
In this tutorial, we begin thinking about the impact of real interest rates on planned investment and output. We then use this to help us plot the IS curve. We then think about how, assuming a fixed money supply, as there is more economic activity, people are willing to pay more for money (helps us plot the LM curve). Finally, we use the IS-LM model to think about how fiscal policy can impact both GDP and real interest rates. You should watch the Keynesian Cross tutorial before this one.

Investment and real interest rates

VIDEO 5:59 minutes
Intuition as to why high real interest rates lead to low investment and why low rates lead to high investment

Connecting the keynesian cross to the IS curve

VIDEO 9:57 minutes
Introduction to the Investment/Savings curve

Loanable funds interpretation of IS curve

VIDEO 6:07 minutes
Thinking about how real GDP can drive real interest rates

LM part of the IS-LM model

VIDEO 7:49 minutes
How the theory of liquidity preference drives demand for money and the LM (liquidity preference-money supply) curve

Government spending and the IS-LM model

VIDEO 7:09 minutes
How a change in fiscal policy shifts the IS curve