If the short-run aggregate supply curve is assumed to be horizontal and there are no international capital flows, then the mother of all models in the Appendix to Chapter 14 corresponds to which of the following special cases?
A) classical closed economy
B) aggregate demand and aggregate supply
C) IS-LM model
D) Mundell-Fleming model with floating exchange rate

Question

Quizplus · Accepted Answer

The IS-LM model is the correct answer because it is designed to analyze the relationship between interest rates and real output in the goods and services market and the money market, under the assumption of no international capital flows and a fixed price level, which aligns with the scenario of a horizontal short-run aggregate supply curve.

If the Short-Run Aggregate Supply Curve Is Assumed to Be