The IS Curve ________.
A)demonstrates how central banks respond to changes in inflation with changes in the interest rate
B)shows how changes in interest rates affect equilibrium output
C)explains short run fluctuations in output and inflation
D)all of the above
E)none of the above

Question

Quizplus · Accepted Answer

The IS curve shows how changes in interest rates affect equilibrium output in the short run. The other options are incorrect: (A) describes the Taylor rule, and (C) describes the Phillips curve.