When the IS and LM curves are combined in the same diagram,the intersection of the two curves determines the equilibrium level of ________ as well as the ________.
A)aggregate output;price level
B)aggregate output;interest rate
C)money supply;price level
D)consumer expenditures;interest rate

Question

Quizplus · Accepted Answer

The intersection of the IS and LM curves determines the equilibrium level of aggregate output and the interest rate. The IS curve represents the equilibrium in the goods market while the LM curve represents the equilibrium in the money market. The point where they intersect represents the level of output where the demand for goods and the demand for money are equal, which in turn determines the interest rate. Therefore, choice B is the correct answer.

When the IS and LM Curves Are Combined in the Same