Adjust the economy's parameters and watch IS and LM intersect at the short-run equilibrium (Y*, r*).
IS: Y = C(Y−T) + I(r) + G | LM: M/P = L(r, Y)
$3.0T
$3.0T
$8.0T
1.00
Equilibrium Y*
22.5
Equilibrium r*
5.00%
Investment I(r*)
$3.5T
Real money M/P
$8.0T
How to read the chart
IS slopes DOWN: higher r → lower I → lower Y. LM slopes UP: higher Y → more money demand → higher r. They cross at the short-run equilibrium. Move the sliders and watch both curves shift.
Trace fiscal-policy shocks through IS-LM. Watch IS shift and the new (Y*, r*) emerge.
Baseline: G=$3T, T=$3T, M=$8T, P=1.0
Crowding out — partial in IS-LM
ΔG > 0 shifts IS RIGHT. Y rises, but so does r → I falls. The fall in I PARTLY offsets the spending — but not fully. Net Y still rises. This is the SR result; in the LR (flexible prices), crowding out becomes complete (Section 2).
Trace monetary-policy shocks. The Fed changes M, LM shifts, r and Y respond.
Real vs nominal effects
In IS-LM, what matters is REAL money M/P. ΔM with P fixed shifts LM. ΔP with M fixed ALSO shifts LM (in the OPPOSITE direction). This is how IS-LM connects to the AD curve — as P changes, LM shifts, tracing the AD curve.