Economics • Economic BasicsMedium
In macroeconomic theory, what does the 'IS-LM' model jointly determine?
A. Inflation rate and unemployment rate in the short run.
B. Equilibrium interest rate and level of national income.✓ Correct Answer
C. Nominal exchange rate and trade balance.
D. Long-term economic growth rate and capital accumulation.
💡 Solution & Explanation
The IS-LM macroeconomic model represents simultaneous equilibrium across the goods market via the investment-saving curve and the money market via liquidity preference and money supply. By intersecting these two schedules, the model determines both the aggregate national income and the prevailing equilibrium interest rate in the short run. Economics syllabi for civil services emphasize macroeconomic general equilibrium frameworks.
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