We now have all the pieces of the IS–LM model. The model takes fiscal policy and , monetary policy , and the price level as exogenous. Given these exogenous variables, the IS curve provides the combinations of and that satisfy the equation representing the goods market, and the LM curve provides the combinations of and that satisfy the equation representing the money market.
The equilibrium of the economy is the point at which the IS curve and the LM curve cross. This point gives the interest rate and the level of income that satisfy conditions for equilibrium in both the goods market and the money market. In other words, at this intersection, actual expenditure equals planned expenditure, and the demand for real money balances equals the supply.