Exam 21: Monetary and Fiscal Policy in the ISLM Model

Everything else held constant,an appreciation of the domestic currency will cause the IS curve to shift to the ________ and aggregate demand will ________.

Everything else held constant,an expansionary ________ policy will cause the interest rate to rise,while an expansionary ________ policy will cause the interest rate to fall.

In the long-run ISLM model and with everything else held constant,as long as the level of output ________ the natural rate level,the price level will continue to ________,shifting the LM curve to the ________,until finally output is back at the natural rate level.

The aggregate demand curve has the usual downward slope,since a higher price level reduces the real money supply,________ interest rates,and ________ the equilibrium level of aggregate output,everything else held constant.

Using the ISLM model,explain and show graphically the effect of a fiscal expansion when the demand for money is completely insensitive to changes in the interest rate.What is this effect called?

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

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

Everything else held constant,a decrease in the price level will ________.

Referring to the Economic Stimulus Act of 2008,the expansionary effect of the government stimulus was overwhelmed by the continuing deterioration in credit market conditions.Everything else held constant and using the ISLM model,the net effect would cause the ________ curve to ________ and output will ________.

An increase in the quantity of money supplied shifts the money supply curve to the ________ and the LM curve to the ________,everything else held constant.

Everything else held constant,changes in the interest rate affect planned investment spending and hence the equilibrium level of output,but this change in investment spending ________.

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

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

An increase in the money supply shifts the LM curve to the right,causing the interest rate to ________ and output to ________,everything else held constant.

Everything else held constant,an increase in government spending will cause ________.

A decline in the money ________ shifts the LM curve to the ________,causing the interest rate to rise and output to fall,everything else held constant.

In the Keynesian cross diagram,an increase in investment spending because companies become more optimistic about investment profitability causes the aggregate demand function to shift ________ and the equilibrium level of aggregate output to ________,everything else held constant.

Everything else held constant,a decrease in autonomous planned investment spending will cause the IS curve to shift to the ________ and aggregate demand will ________.

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

The more interest-sensitive is money demand,the ________.