The relationship between policy effect and the slope of is and lm curve is that when lm curve is unchanged, the absolute value of is curve slope is greater, that is, the steeper IS curve is, the greater the change of income when moving IS curve, that is, the greater the effect of fiscal policy. On the contrary, the flatter the is curve, the smaller the income change when the is curve moves, that is, the smaller the effect of fiscal policy.

When increasing the expansionary effects of fiscal policy of government expenditure, if increasing a sum of government expenditure will make the interest rate rise a lot (which will happen when the lm curve is steep), or if the interest rate rises to a certain extent, it will make the private sector investment fall a lot (which will happen when the IS curve is flat), then the "crowding out effect" of government expenditure will be large, so the expansionary effects of fiscal policy will be small, and vice versa.

The concepts of is curve and lm curve;

When the product market reaches equilibrium, the locus of points of various income and interest rate combinations. Where I stands for investment and S stands for savings. In the two-sector economy, the mathematical expression of is curve is i(r)=s(y), and its slope is negative, which indicates that IS curve is generally inclined to the lower right.

Lm curve is the locus of all the combination points of income and interest rate levels needed to meet the equilibrium of money market. Given the money supply, the increase of income level increases the demand for money, so the speculative demand for money must be reduced by raising interest rates, and the equilibrium of the money market will be restored. The slope of lm curve mainly depends on the ratio of elasticity of money demand to income and interest rate.