An economic variable can be exogenous in some models and endogenous in others. In particular this can happen when one model also serves as a component of a broader model. For example, the
IS model of only the goods market derives the
market-clearing (and thus endogenous) level of
output depending on the exogenously imposed level of
interest rates, since interest rates affect the
physical investment component of the demand for goods. In contrast, the
LM model of only the money market takes income (which
identically equals output) as exogenously given and affecting
money demand; here equilibrium of money supply and money demand endogenously determines the interest rate. But when the IS model and the LM model are combined to give the
IS-LM model, both the interest rate and output are endogenously determined. == See also ==