Suppose the current level of output and the interest rate are such that the economy is operating on neither the IS nor LM curve. Which of the following is true for this economy?

Question

Quizplus · Accepted Answer

If the economy is not operating on either the IS or LM curve, it means that neither the goods market nor the money market is in equilibrium, which implies that production does not equal demand and the money supply does not equal money demand. In addition, the interest rate is such that the quantity supplied of bonds does not equal the quantity demanded for bonds, indicating that financial markets are also not in equilibrium.

Suppose the Current Level of Output and the Interest Rate