# IS-LM Model

*Macro & Economy — Finicade finance glossary*

The IS-LM model plots where goods markets clear (IS) and money markets clear (LM), their intersection giving short-run equilibrium output and rates.

The IS-LM model plots the combinations of interest rate and output where goods markets clear (IS) and money markets clear (LM), with their intersection giving short-run equilibrium. It's the standard classroom tool for showing how fiscal expansion raises rates and crowds out investment, and how monetary policy loses traction in a liquidity trap where the LM curve is flat.

**Also known as:** IS LM, IS-LM curve, Hicks-Hansen model

**Related terms:** [Aggregate Demand](https://finicade.com/glossary/aggregate-demand), [Monetary Policy](https://finicade.com/glossary/monetary-policy), [Fiscal Policy](https://finicade.com/glossary/fiscal-policy), [Crowding Out](https://finicade.com/glossary/crowding-out), [Liquidity Trap](https://finicade.com/glossary/liquidity-trap)

Source: https://finicade.com/glossary/is-lm-model