A set of combinations of nominal interest rates and GDP, for which the demand for money is equal to the supply of money, is the:
A) IS curve.
B) aggregate expenditure line.
C) supply curve.
D) LM curve.

Question

Quizplus · Accepted Answer

The LM curve shows combinations of interest rates and GDP at which the demand for money (as determined by investment and consumption demand) equals the supply of money (as determined by the central bank's monetary policy). Therefore, this is the best choice for the given question. The IS curve shows combinations of interest rates and GDP where the demand for goods and services (as determined by investment, consumption, and government spending) equals the output produced by firms. The aggregate expenditure line shows combinations of income and spending that are consistent with equilibrium in the goods and services market. The supply curve shows how the quantity supplied of a good or service changes in response to changes in its price.

A Set of Combinations of Nominal Interest Rates and GDP