At some rate of interest, i, domestic demand is equal to output, and at some exchange rate, the domestic return is equivalent to the foreign return. This must be one point on:
A) the IS curve.
B) the aggregate expenditure line.
C) the supply curve.
D) the LM curve.

Question

Quizplus · Accepted Answer

The IS curve represents the equilibrium where domestic investment equals savings, which aligns with the condition where domestic demand equals output. Additionally, it incorporates the equilibrium in the goods market, which is influenced by interest rates, including those that affect exchange rates and thus the equivalence of domestic and foreign returns.

At Some Rate of Interest, I, Domestic Demand Is Equal