What is a primary focus of the IS-LM model?

The primary focus of the IS-LM model is to analyze the interaction between real output and interest rates. This model provides a framework for understanding how various factors influence equilibrium in the goods market (IS curve) and the money market (LM curve).

The IS curve represents combinations of interest rates and levels of output where the goods market is in equilibrium, meaning that total spending (consumption, investment, government spending, and net exports) equals total output. On the other hand, the LM curve depicts combinations where the money market is in equilibrium, balancing the demand for money with the supply.

By examining the intersection of the IS and LM curves, the model reveals how changes in fiscal policy (like government spending or taxes) or monetary policy (like changes in the money supply) can influence both real output and interest rates in the economy. This interplay is crucial for macroeconomic analysis as it helps understand the effects of various economic policies and external shocks on overall economic activity.

The other options focus on aspects that are either part of different economic models or not the central theme of the IS-LM framework. For example, international trade balances are more relevant in models addressing open economies, while labor market equilibrium is analyzed within different models, such as the labor supply