Suppose you were given an equilibrium interest rate and a price level consistent with the equality of supply and demand in both the money market and the aggregate goods and services market. You could then
A) compute the corresponding level of GDP only by plugging the given interest rate into the LM curve and solving for Y*.
B) compute the corresponding level of GDP only by plugging the given interest rate into the IS curve and solving for Y*.
C) compute the corresponding level of GDP by plugging the given interest rate into either the IS curve or the LM curve and solving for Y*.
D) not necessarily compute the corresponding level of GDP from either the IS or the LM curve.
E) none of the above.

Question

Quizplus · Accepted Answer

The IS-LM model represents equilibrium in the goods and services market (IS curve) and the money market (LM curve). Given an equilibrium interest rate, you can find the corresponding level of GDP (Y*) by substituting this interest rate into either the IS or LM curve, as both curves intersect at the equilibrium point for both interest rate and GDP.

Suppose You Were Given an Equilibrium Interest Rate and a Price