Two Interpretations of the IS-LM Model Are That the Model

question 114

Multiple Choice

Two interpretations of the IS-LM model are that the model explains:

• A) the determination of income in the short run when prices are fixed, or what shifts the aggregate demand curve.
• B) the short-run quantity theory of income, or the short-run Fisher effect.
• C) the determination of investment and saving, or what shifts the liquidity preference schedule.
• D) changes in government spending and taxes, or the determination of the supply of real money balances.

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Definitions:

Economically Equivalent

Situations, assets, or investments that have the same economic value or impact despite being in different forms or structures.

Replacement Payment

A replacement payment is a sum paid to compensate for a loss or replacing a missed payment or asset.

Compounded Quarterly

Interest calculation method where interest is added to the principal every three months, affecting the total interest earned or paid.

Compounded Monthly

A financial term indicating the interest on a deposit or loan is calculated and added to the principal amount each month; it emphasizes the frequent interest capitalization as opposed to annual.