It is presumed in the IS-LM model that: a.prices are fixed and output depends only on...

It is presumed in the IS-LM model that:

a.prices are fixed and output depends only on supply

b.prices are flexible and output depends only on supply

c.prices are fixed and output depends only on expenditure

d.prices are flexible and output depends only on expenditure

Expert Solution

The answer is (c)

In the IS-LM model it is assumed that in the short run, prices are not flexible and are rigid and thus the prices are fixed. Like the aggregate expenditure method, the expenditure then determines the output in the economy.

All other options are wrong as prices are not assumed to be flexible and output does not depend on supply

Rahul Sunny answered 2 years ago

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