Exam 27: Web 2:the Islm Model

In the ISLM framework a contractionary fiscal policy causes aggregate output to ________ and the interest rate to ________,everything else held constant.

As aggregate output rises,the demand for money ________ and the interest rate ________,so that money demanded equals money supplied and the money market is in equilibrium.

In the Keynesian model the quantity of money demanded is ________ related to income and ________ related to the interest rate.

Macroeconomic equilibrium requires

The long-run neutrality of money refers to the fact that in the long run,monetary policy

In the basic closed-economy ISLM model,the IS curve can be described by an equation where

If the economy is on the IS curve,but is to the right of the LM curve,aggregate output will ________ and the interest rate will ________.

In the long-run ISLM model and with everything else held constant,the long-run effect of a cut in government spending is to ________ real output and ________ the interest rate.

If the Fed adopts a policy of pegging the interest rate,a ________ in government spending forces the Fed to increase the money supply to prevent interest rates from ________.

The money market is in equilibrium

In the long-run ISLM model and with everything else held constant,the long-run effect of an expansionary monetary policy is to

If the Federal Reserve conducts open market ________,the money supply ________,shifting the LM curve to the left,everything else held constant.

Because inflation was not a serious problem during the Great Depression,Keynes's analysis assumed

If the economy is on the LM curve,but is to the right of the IS curve,aggregate output will ________ and the interest rate will ________.

An autonomous decrease in money demand,other things equal,shifts the ________ curve to the ________.

If the economy is on the LM curve,but is to the left of the IS curve,aggregate output will ________ and the interest rate will ________.

Aggregate output and the interest rate are ________ related to government spending and are ________ related to taxes.

Show graphically and explain why targeting an interest rate is preferable when money demand is unstable and the IS curve is stable.

Which of the following statements concerning Keynesian ISLM analysis is TRUE?

In the long-run ISLM model and with everything else held constant,the long-run effect of a tax cut is to ________ real output and ________ the interest rate.