ISLM, even known as IS-LM curve is an integral model of macroeconomics that facilitates the working of an open economy. It is used for understanding the monetary policy and fiscal policy of an organization, country or industry. Other than that, this short model even helps students to explore the vital effects of exchange rate systems by determining the changes in the level of prices. Fundamentally, there are two core concepts involved in this subject which are “IS curve” and “LM curve”.

The IS curve determines the combination of output rates and interest rates which clears the service market and the goods. A good or service is said to be clear when the spending made by the customer, government or different firms is equivalent to the value of the production of good. But, LM curve is used for finding the combination of interest rates and income which equates with money supply and money demand.

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