In the basic closed-economy ISLM model,the LM curve can be described by an equation where
A)output is a function of consumption.
B)money is a function of interest rates.
C)output is a function of money.
D)interest rate is a function of output.

Question

Quizplus · Accepted Answer

In the basic closed-economy ISLM model, the LM (Liquidity preference-Money supply) curve represents the relationship between the interest rate and output (income) that equates the demand for money with the supply. Therefore, the interest rate is a function of output, as higher levels of output or income increase the demand for money, which can lead to higher interest rates if the supply of money does not change.

In the Basic Closed-Economy ISLM Model,the LM Curve Can Be