Question 1

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

Accepted Answer

A) increase; increase 
B) increase; decrease 
C) decrease; decrease 
D) decrease; increase

Question 2

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.

Accepted Answer

A) rise; LM; right 
B) rise; IS; right 
C) fall; IS; left 
D) fall; LM; left

Question 3

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

Accepted Answer

A) increases; increases; right 
B) increases; decreases; right 
C) decreases; increases; left 
D) decreases; decreases; left

Question 4

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

Accepted Answer

A) fiscal; expansionary 
B) fiscal; contractionary 
C) monetary; expansionary 
D) monetary; contractionary

Question 5

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.

Accepted Answer

A) up; left 
B) up; right 
C) down; left 
D) down; right

Question 6

The IS curve shifts to the left when ________.

Accepted Answer

A) taxes increase 
B) government spending increases 
C) the money supply increases 
D) autonomous planned investment spending increases

Question 7

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

Accepted Answer

A) rising; rising 
B) rising; falling 
C) falling; rising 
D) falling; falling

Question 8

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

Accepted Answer

A) decreases; right 
B) decreases; left 
C) increases; right 
D) increases; left

Question 9

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.

Accepted Answer

A) rise; left 
B) rise; right 
C) fall; left 
D) fall; right

Question 10

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

Accepted Answer

A) rising; rising 
B) rising; falling 
C) falling; rising 
D) falling; falling

Question 11

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

Accepted Answer

A) IS; right 
B) IS; left 
C) LM; left 
D) LM; right

Question 12

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

Accepted Answer

A) net exports; right 
B) net exports; left 
C) money demand; right 
D) money demand; left

Question 13

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.

Accepted Answer

A) real; lowers 
B) real; raises 
C) nominal; lowers 
D) nominal; raises

Question 14

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.

Accepted Answer

A) decreases; right 
B) decreases; left 
C) increases; right 
D) increases; left

Question 15

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.

Accepted Answer

A) up; left 
B) up; right 
C) down; left 
D) down; right

Question 16

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

Accepted Answer

A) the quantity of aggregate demand to increase. 
B) the quantity of aggregate demand to decrease. 
C) aggregate demand to increase. 
D) aggregate demand to decrease.

Question 17

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?

Accepted Answer

The answer of Using the ISLM model,show graphically and explain...

Question 18

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.

Accepted Answer

A) lower; reduces 
B) lower; increases 
C) higher; reduces 
D) higher; increases

Question 19

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.

Accepted Answer

A) increase; increase 
B) increase; not change 
C) not change; increase 
D) not change; decrease

Question 20

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 ________.

Accepted Answer

A) IS curve 
B) LM curve 
C) aggregate demand curve 
D) production function

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 ________.