The
IS–LM model, or
Hicks–Hansen model, is a
macroeconomic tool that shows the relationship between
interest rates and real output, in the goods and services market and the money market (also known as the assets market). The intersection of the "
investment–
saving" (IS) and "
liquidity preference–
money supply" (LM) curves is the "general equilibrium" where there is simultaneous equilibrium in both markets. Two equivalent interpretations are possible: first, the IS–LM model explains changes in
national income when the price level is fixed in the short-run; second, the IS–LM model shows why the
aggregate demand curve shifts. Hence, this tool is sometimes used not only to analyse the fluctuations of the economy but also to find appropriate stabilisation policies.