The IS curve shows the combinations of ________ and ________ where the goods market is in equilibrium.
A) aggregate expenditure; real GDP
B) the real interest rate; real GDP
C) potential GDP; aggregate expenditure
D) the nominal interest rate; the quantity of money

Question

Quizplus · Accepted Answer

The IS curve shows the combinations of the real interest rate and real GDP where the goods market is in equilibrium. The real interest rate represents the cost of borrowing and lending money, and it affects the amount of investment and consumption in the economy, which in turn affects the level of output and income in the goods market. Therefore, the IS curve reflects the relationship between the interest rate and the level of output and income in the short run, assuming a fixed level of prices and nominal income.

The IS Curve Shows the Combinations of ________ and ________

The IS Curve Shows the Combinations of and