Exam 22: Is-Lm in Action

An increase in autonomous consumption leads to an increase in the equilibrium interest rate and equilibrium level of output in the IS-LM model.

Movement up along the AD curve is associated with an increase in the interest rate.

If the LM curve shifts to the right, the increase in equilibrium output will be mitigated if the monetary authority is targeting the interest rate.

A decrease in the money supply causes the _____ curve to shift to the left and equilibrium output to

The AD curve slopes upward because the LM curve shifts left.

Explain the difference between fiscal policy and monetary policy.

Show the effect of an increase on output on a graph of the supply and demand for money. What does this say about the LM curve?

The Fed responds to a financial panic according to Bagehot's Law. Show the panic and the response on a graph of money supply and demand.

If output is below the natural rate, output eventually rises due to a fall in the price level and shift of LM to the right.

Which of the following is NOT a change in fiscal policy?

If output is below the natural rate then price level will _____, causing the _____ curve to shift right.

Equilibrium output will rise and the equilibrium interest rate will fall if

During the Great Depression, investment fell and the Fed allowed the money supply to fall. Show the effect on equilibrium output and the interest rate on an IS-LM graph.