In the IS-LM model the equilibrium level of the interest rate depends on:
A)the population growth rate.
B)government spending.
C)the depreciation rate.
D)none of the above.

Question

Quizplus · Accepted Answer

In the IS-LM model, the equilibrium level of the interest rate is determined by the intersection of the IS and LM curves, which represent the equilibrium conditions in the goods and money markets, respectively. Government spending is a key determinant of the position of the IS curve, which shows the combinations of interest rate and output where planned expenditure equals income. Therefore, changes in government spending can shift the IS curve and affect the equilibrium interest rate. The population growth rate and the depreciation rate are not directly related to the interest rate in the IS-LM model.

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