Exam 21: Monetary and Fiscal Policy in the ISLM Model

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

A decrease in autonomous consumer expenditure causes the equilibrium level of aggregate output to ________ at any given interest rate and shifts the ________ curve to the ________,everything else held constant.

A tax cut ________ disposable income,________ consumption expenditure,and shifts the IS curve to the ________,everything else held constant.

If an economy experiences high interest rates and high unemployment,the ISLM framework predicts that ________ policy has been too ________.

In the Keynesian cross diagram,an increase in autonomous consumer expenditure causes the aggregate demand function to shift ________,the equilibrium level of aggregate output to rise,and the IS curve to shift to the ________,everything else held constant.

The IS curve shifts to the left when ________.

Everything else held constant,a monetary expansion is characterized by ________ output and ________ interest rates.

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

In the Keynesian cross diagram,an increase in autonomous consumer expenditure causes the aggregate demand function to shift up,the equilibrium level of aggregate output to ________,and the IS curve to shift to the ________,everything else held constant.

Everything else held constant,a monetary contraction is characterized by ________ output and ________ interest rates.

If the price level increases,everything else held constant,the ________ curve shifts to the ________.

An autonomous rise in ________ shifts the LM curve to the ________,everything else held constant.

The aggregate demand curve is downward sloping because a decrease in the price level increases the ________ money supply which ________ interest rates and increases the equilibrium level of aggregate output,everything else held constant.

A shift in tastes toward American goods ________ net exports in the U.S.and causes the IS curve to shift to the ________ in the U.S.,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 ________,the equilibrium level of aggregate output to rise,and the IS curve to shift to the ________,everything else held constant.

Everything else held constant,contractionary monetary policies will cause ________.

Using the ISLM model,show graphically and explain the effects of a monetary contraction.What is the effect on the equilibrium interest rate and level of output?

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

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.

The relationship between the price level and the quantity of aggregate output for which the goods and money markets are in equilibrium is called the ________.