The IS and LM curves together generally determine:
A) income only.
B) the interest rate only.
C) both income and the interest rate.
D) income, the interest rate, and the price level.

Question

Quizplus · Accepted Answer

The IS curve represents the combinations of income and interest rates that lead to equilibrium in the goods market (where aggregate expenditure equals output) and the LM curve represents the combinations of income and interest rates that lead to equilibrium in the money market (where money demand equals money supply). Together, these curves determine both equilibrium income (output) and equilibrium interest rate in the economy. Therefore, the correct answer is C) both income and the interest rate.

The IS and LM Curves Together Generally Determine