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What are the variables of the interest in the IS-LM model.

What are the variables of the interest in the IS-LM model.

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Answer #1

We know that the IS-LM curve represents the investment-saving and liquidity and money. John R Hicks introduced it in 1937. It is the Keynesian macroeconomic model which describes how the market for economic goods interacts with the loanable funds market. It shows the short run equilibrium between the rate of interest and output of the economy. In the IS-LM curve, there are three variables exogenously determined,

Liquidity

Investment

Consumption

Here the liquidity is determined by the velocity of money. The decision taken by individuals determines investment and consumption.

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