FIGURE 12-5: Deriving the Aggregate Demand Curve with the IS–LM Model Panel (a) shows the IS–LM model: an increase in the price level from P₁ to P₂ lowers real money balances and thus shifts the LM curve upward. The shift in the LM curve lowers income from Y₁ to Y₂. Panel (b) shows the aggregate demand curve summarizing this relationship between the price level and income: the higher the price level, the lower the level of income.