In the IS-LM model the equilibrium level of the interest rate depends on:
A)money supply.
B)government spending.
C)the marginal propensity to consume.
D)all of the above.

Question

Quizplus · Accepted Answer

The equilibrium level of the interest rate is determined by the intersection of the IS and LM curves in the IS-LM model. The IS curve represents equilibrium in the goods market and depends on government spending and the marginal propensity to consume. The LM curve represents equilibrium in the money market and depends on money supply. Therefore, all of the above factors (government spending, marginal propensity to consume, and money supply) determine the equilibrium interest rate in the IS-LM model.

In the IS-LM Model the Equilibrium Level of the Interest