Exam 4: Monetary and Fiscal Policy in the Is-Lm Model

If the interest rate were to rise, we expect that

Moving upward along an LM curve, velocity ________ because ________ remains constant while ________ rises.

Suppose the Federal Reserve desires to raise the level of planned investment in the economy. It either has to hope that an improvement in business confidence shifts the rate-of-return line to the ________ , or it has to take direct action by ________ the interest rate.

If a 200 billion dollar increase in government spending occurs when the Fed seeks to maintain a fixed interest rate then

A "easy" money, tight "fiscal" policy combination will be preferred by society which values

One of the major chains of causation in macroeconomic policymaking is government manipulation of ________ in order to affect ________, and thus ultimately ________.

Factors that shift the demand schedule for money include all of the following except:

A change in the public's desire to hold money will

Suppose that changes in the interest rate have absolutely no effect on the demand for money. The resulting ________ LM curve causes monetary policy to have ________ effect in changing income.

If government spending is increased,

During the 1990s Japan's economy experienced

We can infer that the government is following a restrictive fiscal policy when

The money supply consists of

Suppose that we are at a point on the money demand schedule where (M/P) = 500. At a constant interest rate, the quantity of money demanded increases when real income ________ so that ________.

Among all assets, only money can be a

The Chapter 3 multiplier, because it assumes an ________ interest rate, is usually an ________ of the fiscal policy multiplier in the IS-LM model.

Figure 4-6 -In the figure above, suppose we are initially at point 2. A reduction in government spending causes income to change by ________ and the interest rate to change by ________ than would be the case in the Chapter 3 model.

Crowding-out is eliminated when the LM curve is ________, so that expansionary fiscal policy ________ the interest rate.

In a "liquidity trap"

If the level of interest rates paid on time deposits rise relative to that paid by money market accounts, ceteris paribus, individual will