Exam 28: The ISLM Model

If the IS and LM curves in the economy are given by the curves in the following diagram, what would lead to the particular LM curve depicted? How would this affect fiscal and monetary policies?

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 ________.

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

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 an expansionary fiscal policy is to ________ real output and ________ the interest rate.

If the economy is on the IS curve, but is to the left of the LM curve, then the ________ market is in equilibrium, but the interest rate is ________ the equilibrium level.

Describe the key assumption that drives Keynes's ISLM model.