Liquidity Preference - Money Supply Model - Explained
What is the Investment Savings Liquidity Preference Money Supply Model?
Written by J. Mance Gordon
Updated at April 23rd, 2024
- Marketing, Advertising, Sales & PR
- Accounting, Taxation, and Reporting
- Professionalism & Career Development
-
Law, Transactions, & Risk Management
Government, Legal System, Administrative Law, & Constitutional Law Legal Disputes - Civil & Criminal Law Agency Law HR, Employment, Labor, & Discrimination Business Entities, Corporate Governance & Ownership Business Transactions, Antitrust, & Securities Law Real Estate, Personal, & Intellectual Property Commercial Law: Contract, Payments, Security Interests, & Bankruptcy Consumer Protection Insurance & Risk Management Immigration Law Environmental Protection Law Inheritance, Estates, and Trusts
- Business Management & Operations
- Economics, Finance, & Analytics
What is the IS-LM Model?
The IS-LM model, which stands for “investment-saving” (IS) and “liquidity preference-money supply” (LM) is a Keynesian model that shows how the market for economic goods (IS) interacts with the loanable funds market (LM) or money market.
It is represented as a graph in which the IS and LM curves intersect to show the short-run equilibrium between interest rates and output.
The three external variables in the IS-LM model are liquidity, investment, and consumption.
According to the theory, liquidity is determined by the size and velocity of the money supply.
The levels of investment and consumption are determined by the marginal decisions of individual actors.
The IS-LM graph examines the relationship between output, or GDP and interest rates.
The entire economy is boiled down to just two markets—output and money—and their respective supply and demand characteristics push the economy toward an equilibrium point.
Related Topics
- Legal Tender
- Numismatics
- Gresham's Law
- Barter
- Double Coincidence of Wants
- Parity
- Functions of Money
- Medium of Exchange
- Unit of Account
- Store of Value
- Time Value of Money
- Standard of Deferred Payment
- Liquidity Preference Theory
- National Savings and Investment Identity
- Circular Flow of Money
- Commodity Money
- Gold Exchange Standard
- Bretton Woods System
- Fiat Money
- Money Supply
- M1 and M2 Money Supply
- Monetary Base
- Savings, Demand, and Time Deposits
- Banks
- How Do Banks Create Money?
- Financial Intermediary
- Bank Balance Sheet
- Money Multiplier Formula
- Velocity of Money
- Multiplier Effect
- Quantity Equation of Money
- McCallum Rule
- Neutrality of Money
- Real Bills Theory
- Banking System?
- Central Bank
- Federal Reserve System
- Federal Open Market Committee (FOMC)
- Fed Balance Sheet
- Term Auction Facility
- Taylor Rule
- How is the Federal Reserve Bank Organized?
- What is Bank Regulation?
- CAMELS Rating
- FDIC
- CFPB
- Bank Supervision
- Bank Runs
- What is Deposit Insurance?
- Federal Deposit Insurance Corporation
- Lender of Last Resort
- Central Banks Carry Out Monetary Policy
- Open Market Operations
- Bank Reserve
- Discount Rate
- Federal Funds Rate
- Monetary Policy
- Contractionary and Expansionary Monetary Policy
- Loose vs Tight Monetary Policy
- Easy Monetary Policy
- Accommodative Monetary Policy
- Dove & Hawk (Monetary Policy) - Explained
- Tight Monetary Policy - Explained
- Stabilization Policy
- Pushing on a String
- The Effect of Monetary Policy on Interest Rates
- Federal Funds Rate
- Gibson Paradox
- Vasicek Interest Rate Model
- Equation of Exchange (Economics)
- The Effect of Monetary Policy on Aggregate Demand
- Quantitative Easing
- Reserve Currency
- What are Excess Reserves?
- Unpredictable Movements of Velocity
- Central Banks - Unemployment and Inflation
- Inflation Targeting
- Fisher Effect
- Asset Bubbles and Leverage Cycles
- Countercyclical
- Money Capital Market
- Quantity Theory of Money
- Aggregate Expenditure Model
- IS-LM Model
- European Capital Market Institute