Question

A goods market equilibrium occurs when ? a.unplanned inventory investment is positive. c. the economy is not at a point on the is curve. d. unplanned inventory investment is negative.

Answer 1

A goods market equilibrium occurs when unplanned inventory investment is​ zero, and the economy is at a point on the IS curve.

What is the IS curve?

The IS curve represents the set of all production (GDP) and interest rate levels where total investment (I) equals total saving (S). The IS curve slopes downhill and to the right for lower interest rates because higher investment leads to greater total production (GDP).

The LM curve is the set of all GDP and interest rate levels at which the demand for money (liquidity) matches the supply of money. The LM curve slopes upward as a result of greater demand for holding cash balances for transactions brought on by rising income levels (GDP), which necessitates a higher interest rate to maintain the equilibrium between money supply and liquidity demand.

When the money markets and the real economy are in balance, the intersection of the IS and LM curves displays the equilibrium point of interest rates and output. By including more IS and LM curves, one can depict many circumstances or points in time.

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