Suppose the current level of output and the interest rate are such that the economy is operating on neither the IS nor LM curve.Which of the following is true for this economy?

Question

Quizplus · Accepted Answer

The fact that the economy is operating on neither the IS nor LM curve means that neither production nor demand equals each other, indicating that A is true. Similarly, since the economy is not on either curve, there must be some mismatch between money supply and money demand, making B true. Finally, since the economy is not in equilibrium, the quantity supplied of bonds cannot equal the quantity demanded, hence C is also true. Therefore, E is the correct answer.

Suppose the Current Level of Output and the Interest Rate