IS-LM analysis represents
A) monetary policy by a shift in the LM curve and fiscal policy by a shift in the IS curve.
B) monetary policy by a shift in the IS curve and fiscal policy by a shift in the LM curve.
C) fiscal and monetary policies by opposite shifts in the IS curve.
D) fiscal and monetary policies by opposite shifts in the LM curve.
E) none of the above.

Question

Quizplus · Accepted Answer

In the IS-LM model, the IS curve represents the relationship between interest rates and the equilibrium level of income in the goods market, shifting due to fiscal policy changes (like changes in government spending or taxes). The LM curve represents the relationship between interest rates and the equilibrium level of income in the money market, shifting due to monetary policy changes (like changes in the money supply). Therefore, monetary policy is represented by shifts in the LM curve, and fiscal policy by shifts in the IS curve.

IS-LM Analysis Represents