The intersection of the IS and LM curves shows:
A)the balance of payments deficit or surplus.
B)the short-run equilibrium interest rate and the output level in the economy.
C)the short-run trade balance.
D)the long-run equilibrium inflation rate and the natural rate of unemployment in the economy.

Question

Quizplus · Accepted Answer

The IS curve represents the equilibrium in the goods market, while the LM curve represents the equilibrium in the money market. The intersection of these two curves shows the short-run equilibrium interest rate and output level in the economy. Therefore, choice B is the best answer.

The Intersection of the IS and LM Curves Shows