aggregate private spending (A)  

• A(Y,T,r) = C(Y-T) + I(Y,r)
• Y = C(Y-T) + I(Y,r) + G = A(Y,T,r) + G
• increasing function of income (Y)
• decreasing function of taxes, real interest
  • higher taxes >> less consumption >> less private spending
  • higher interest rates >> less willing to invest >> investment decreases >> less private spending
• include expectations >> Y = A(Y,T,r,Y^e,T^e,r^e) + G
  • increase current/expected income >> increase private spending
  • increase current/expected taxes or real interest >> decrease spending
  • steeper than previous IS curve
  • w/ expectations being considered, changes in current values don't affect output as much as before
• changes in Y, r >> move along curve
• chanages in T, G, expected values >> shift curve

LM relation - doesn't change w/ expectations  

• M/P = Y L(i)
  • money supply equals money demand
• how much money consumer wants to hold depends only on current level of transactions, not expected transactions in the future
• opportunity cost of holding money depends only on current nominal interest rate