The document discusses the modern theory of interest known as the IS-LM model developed by Hicks and Hansen. It summarizes the classical and Keynesian theories of interest before explaining that the IS-LM model shows that interest is determined by both goods and money markets. The IS curve represents goods market equilibrium where savings equals investment at different rates of interest and income levels. The LM curve shows money market equilibrium where demand for money equals supply of money. The intersection of the IS and LM curves indicates the general equilibrium when both markets clear simultaneously. The model can be used to analyze the effects of fiscal and monetary policies on interest rates, income, and equilibrium.