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The IS-LM model, which stands for Investment-Savings (IS) and Liquidity Preference-Money Supply (LM), is a macroeconomic framework that illustrates the relationship between real output (GDP) and interest rates in an economy. The IS curve represents equilibrium in the goods market, showing combinations of interest rates and output where investment equals savings. The LM curve represents equilibrium in the money market, indicating combinations where money supply equals money demand. Together, they help analyze the effects of fiscal and monetary policy on overall economic activity.
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