Of the Following Comments Related to Equilibrium Level in an IS-LM

question 52

Essay

Of the following comments related to equilibrium level in an IS-LM model, which best denotes the logical causality, and why?
A. The goods and services market as denoted by IS curve gives an equilibrium level of Y, which when posited in the LM curve gives the equilibrium level of r.
B. The goods and services market as denoted by the IS curve gives an interest rate as a function of Y which helps solve for equilibrium in the money market.
C. The equilibrium rate of interest as determined by the demand for real balances for a given level of money supply in the money market helps determine the equilibrium level of investment that finally helps reach an equilibrium level of income.

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Definitions:

Typical Corporation

A standard business entity where ownership is divided into shares of stock, offering limited liability to its shareholders and being subject to corporate tax rates.

Disposable Income

Money left for savings and expenditures in households after paying income taxes.

Disposable Income

This refers to the amount of money that households have available for spending and saving after income taxes have been accounted for.

Disposable Income

The total funds available for spending and saving by households after subtracting income taxes.