Question 3:

The LM curve in a closed economy

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.