Exam 28: The ISLM Model

In the long-run the ISLM model predicts that ________ can change real output.

If the ________ curve is relatively more unstable than the ________ curve, a money supply target is preferred.

If the economy is characterized by a stable IS curve and an unstable LM curve, then ________ target produces ________ fluctuations in aggregate output.

If the economy is characterized by a certain and stable LM curve, then ________ target produces ________ fluctuations in aggregate output.

In the money market, a condition of excess supply of money can be eliminated by a ________ in aggregate output or a ________ in the interest rate, everything else held constant.

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

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

Using the ISLM model, explain the effects of a monetary expansion combined with a fiscal contraction. How do the equilibrium level of output and interest rate change?

If the ________ curve is relatively more unstable than the ________ curve, an interest rate target is preferred.

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 ________.

Everything else held constant, if aggregate output is to the ________ of the LM curve, then there is an excess ________ of money which will cause the interest rate to fall.

Everything else held constant, if aggregate output is to the ________ of the LM curve, then there is an excess demand of money which will cause the interest rate to ________.

Despite an expansionary monetary policy, an economy experiences a recession. Everything else held constant, the recession could occur in spite of the rightward shift of the LM curve if ________.

When is the targeting of the money supply preferred to the interest-rate target? support your answer with the appropriate diagram.

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.

Everything else held constant, if aggregate output is to the left of the LM curve, then there is an excess ________ of money which will cause the interest rate to ________.

An increase in spending that results from expansionary ________ policy causes the interest rate to ________, everything else held constant.

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 ________.

As interest rates rise, the opportunity cost of holding money ________ and the demand for money ________.

In the long-run ISLM model and with everything else held constant, the long-run effect of an autonomous fall in consumption expenditure is to ________ real output and ________ the interest rate.