The IS-LM model summarizes goods-market and money-market equilibrium with two intersecting curves.
The IS curve represents combinations of income and the interest rate for which planned spending equals output. Its name comes from investment and saving. In the standard diagram, it slopes downward: lower interest rates encourage investment and other interest-sensitive spending, raising equilibrium output.
The LM curve represents combinations of income and the interest rate for which money demand equals the available money supply. It usually slopes upward because higher income increases the demand for transaction balances; with a fixed real money supply, the interest rate must rise to maintain monetary equilibrium.
Their intersection gives a short-run simultaneous equilibrium in the goods and money markets, producing a particular level of real GDP and interest rate. The model was developed by John Hicks from Keynesian ideas and later formalized in a widely taught form by Alvin Hansen, so it is also called the Hicks-Hansen model.
A common mix-up is treating IS-LM as a complete model of the whole economy. It normally assumes fixed or sticky prices and does not by itself determine labor-market equilibrium, inflation, or long-run growth. Open-economy analysis is handled by extensions such as the Mundell-Fleming framework.