In the IS-LM Model, Which Two Variables Are Influenced by the Interest

question 11

Multiple Choice

In the IS-LM model, which two variables are influenced by the interest rate?

• A)supply of nominal money balances and demand for real balances
• B)demand for real balances and government purchases
• C)supply of nominal money balances and investment spending
• D)demand for real money balances and investment spending

---

Definitions:

Public-sector Provision

Involves services and goods provided by the government or public entities to ensure welfare and infrastructure availability to the public.

Rent-seeking

The practice of gaining wealth without creating new wealth, typically through manipulating the social or political environment in which economic activities occur.

Short-sightedness Effect

The tendency of decision makers to prioritize immediate benefits at the expense of long-term gains.

Externalities

Costs or benefits that affect a party who did not choose to incur those costs or benefits, often leading to market failure if unaddressed by policy.