1. gives the combinations of the real interest rate and domestic real income for which the demand for money and supply of money are equal.
2. gives the combinations of the real interest rate and real income for which stock equilibrium holds in the domestic economy.
3. gives the combinations of the real interest rate and real income for which domestic residents are in portfolio equilibrium.
4. gives all of the above.
Choose the option above that is correct.
The correct option is 4. All of the first three options make correct statements. Since domestic residents must hold their non-human wealth either in the form of money or non-monetary assets, equality of the demand and supply of money necessarily implies equality of the demand and supply for the aggregate of other assets. This means that domestic residents are in portfolio equilibrium. Since asset holdings are stocks, equilibrium in the markets for money and other assets represents stock equilibrium. At the point where the IS and LM curves cross, the economy is in both stock and flow equilibrium.