The interaction of the IS curve and the LM curve together determine:
A)the price level and the inflation rate.
B)the interest rate and the price level.
C)investment and the money supply.
D)the interest rate and the level of output.

Question

Quizplus · Accepted Answer

The intersection of the IS and LM curves determine the equilibrium interest rate and level of output in the economy, as shown by the point where planned investment equals saving (IS curve) and the demand for money equals the supply of money (LM curve). Therefore, the correct answer is D, the interest rate and level of output. A and B are incorrect because the price level is not directly determined by the IS-LM model, and C is incorrect because investment and the money supply are factors that affect the IS and LM curves, respectively, but are not determined by their intersection.

The Interaction of the IS Curve and the LM Curve