Question

The IS curve represents Select one: a. the single level of output where financial markets are in equilibrium. b. the combinations of output and the interest rate where the money market is in equilibrium. c. the single level of output where the goods market is in equilibrium. d. the combinations of output and the interest rate where the goods market is in equilibrium.

Answer 1

Answer:

D. the combinations of output and the interest rate where the goods market is in equilibrium.

Explanation:

The IS curve means investment-savings curve.

The IS curve is the combinations of output and the interest rate where the goods market is in equilibrium.

It is a curve which shows the different combinations of income (Y) and the real interest rate (r) such that the market for goods and services is in equilibrium.

This means that, every point on the IS curve is an income/real interest rate pair (Y,r) such that the demand for goods is equal to the supply of goods(Qs=Qd) or equivalently, the desired national saving is equal to desired investment.

Answer 2

Answer:

d. the combinations of output and the interest rate where the goods market is in equilibrium.

Explanation:

British economist John Hicks was the first to introduce the IS-LM model in 1937, where IS stands for Investment-Savings and LM stands for Liquidity preference-Money supply. It is a Keynesian macroeconomic model that gives the relationship between the market for economic goods (Investment-Savings) and the money market (Liquidity preference-Money supply). The IS-LM model is a graphical representation of Keynesian economic theory.

The IS curve represents the combinations of output and the interest rate where the goods market is in equilibrium. When there's an increase in government spending, the IS curve would shift to the right on the graph.

Also, when there's an increase in the interest rate, it causes investment spending to decrease as the IS curve shifts to the left with respect to economy.