General equilibrium in the goods and money market

Reading: AB, chapter 10, section 4.

At r = 5% and Y = 100 the IS and LM curves intersect. At this point both the goods market and the money market are in equilibrium. This is called a general equilibrium since more than one market is in equilibrium simultaneously. If r = 8% and Y = 75 then the goods market is in equilibrium (on the IS curve) but the money market is not in equilibrium (off the LM curve). At r = 8%, Y is too low for the money market to be in equilibrium. To get to general equilibrium, r must fall and Y must rise (holding everything else fixed).