<P> Given expectations about returns on fixed investment, every level of the real interest rate (i) will generate a certain level of planned fixed investment and other interest - sensitive spending: lower interest rates encourage higher fixed investment and the like . Income is at the equilibrium level for a given interest rate when the saving that consumers and other economic participants choose to do out of this income equals investment (or, equivalently, when "leakages" from the circular flow equal "injections"). The multiplier effect of an increase in fixed investment resulting from a lower interest rate raises real GDP . This explains the downward slope of the IS curve . In summary, this line represents the causation from falling interest rates to rising planned fixed investment (etc .) to rising national income and output . </P> <P> The IS curve is defined by the equation </P> <Dl> <Dd> Y = C (Y − T (Y)) + I (r) + G + N X (Y), (\ displaystyle Y = C \ left ((Y) - (T (Y)) \ right) + I \ left ((r) \ right) + G + NX (Y),) </Dd> </Dl> <Dd> Y = C (Y − T (Y)) + I (r) + G + N X (Y), (\ displaystyle Y = C \ left ((Y) - (T (Y)) \ right) + I \ left ((r) \ right) + G + NX (Y),) </Dd>

Define general equilibrium and show the general equilibrium point in the is-lm diagram