Exam 9: The IS-LMAD-AS Model: A General Framework for Macroeconomic Analysis

People have reduced their expectations of inflation from 5% to 3%, directly causing

Suppose the intersection of the IS and LM curves is to the left of the FE line. What would most likely eliminate a disequilibrium among the asset, labour, and goods markets?

The Bank of Canada has announced that it plans to lower the rate of monetary growth from 10% per year to 2% per year. You would expect this announcement to directly

Which of the following changes shifts the SRAS curve down?

Suppose the Bank of Canada's short-run response to any change in the economy is to change the money supply to maintain the existing real interest rate. What would happen to money supply if there were a reduction in government purchases? Given the Bank of Canada's policy, what would happen in the very short run (before general equilibrium is restored) to output and the real interest rate? What must happen to the LM curve and the price level to restore general equilibrium?

The aggregate demand curve slopes downward because

Which of the following will shift IS curve down and to the left?

Keynesian economists think general equilibrium is not attained quickly because

Suppose monetary policymakers decide they will increase output in the economy by increasing the money supply. Beginning from a position of general equilibrium, what effect does this have in the very short run (before general equilibrium is restored)? What must happen to restore general equilibrium? What would happen if the monetary policymaker persistently increased the money supply to try to increase output?

Looking at the macroeconomic statistics for Friedmanland, you discover that at the beginning of the year, the national money supply was equal to $400 million and by the end of the year it was equal to $420 million. You also found out that the inflation rate in Friedmanland was 7%. In this case, you would expect the LM curve to

Banks decide to raise the interest rate they pay on chequing accounts from 4.75% to 5.25%. This action would

Analyze the following statement, and show what would happen in the long run if such advice were followed by the Bank of Canada: "The increase in the stock market has increased people's wealth. As a result, their consumption has increased, increasing aggregate demand and output. So the Bank of Canada needs to increase the money supply, since with higher income, people's demand for real money balances will be higher."

Oil prices have risen temporarily, due to political uncertainty in the Middle East. An advisor to the Bank of Canada suggests, "Higher oil prices reduce aggregate demand. To offset this we must increase the money supply. Then the price level won't need to adjust to restore equilibrium, and we'll prevent a recession." Analyze this statement using the IS-LM model.

A decrease in the effective tax rate on capital would shift the IS curve ________ and the LM curve ________.

When the money supply declines by 10%, in the short run, output ________ and the price level ________.

Which of the following statements is not true?

Keynesian economists believe that in the short run,

To reach general equilibrium, the price level adjusts to shift the ________ until it intersects with the ________.

Use the IS-LM model to determine the effects of each of the following on the general equilibrium values of the real wage, employment, output, the real interest rate, consumption, investment, and the price level. a. Tougher immigration laws reduce the working-age population. b. There's increased volatility in the prices of stocks and bonds. c. The government tries to achieve tax equity by an increase in the corporate tax rate. d. Increased computerization reduces stock market brokerage costs.

People have increased their expectations of inflation from 3% to 5%, directly causing