question
Why does and increase in M lead to an increase in real money balances (M/P) ?
answer
Because P is fixed in the short run.
question
What does the theory of liquidity preference show?
answer
That for any given level of income, an increase in real money balances leads to a lower interest rate.
question
A change in the ______ alters the ______, and shifts the LM curve.
answer
money supply,
interest rate
interest rate
question
An increase in M causes the LM curve to shift which direction?
answer
Downward.
question
How does monetary policy influence income?
answer
By changing the interest rate.
question
What is the Monetary Transmission Mechanism?
answer
The way in which a monetary expansion induces greater spending on goods and services.
question
What are the Exogenous variables in the IS-LM model?
answer
Fiscal Policy
Monetary Policy
Price level
Monetary Policy
Price level
question
What Endogenous variables does the model explain?
answer
the Interest Rate
the Level of National Income
the Level of National Income
question
The IS curve represents the _____ relationship between the _______ and the level of _______ that arises from equilibrium in the _______ market.
answer
negative,
interest rate,
income,
goods and services
interest rate,
income,
goods and services
question
The LM curve represents the ______ relationship between the ________ and the level of ________ that arises from equilibrium in the market for ______________.
answer
positive,
interest rate,
income,
real money balances.
interest rate,
income,
real money balances.
question
What does equilibrium in the IS-LM model represent?
answer
The simultaneous equilibrium in the market for goods and services and in the market for real money balances.
question
How does the aggregate demand curve summarize the results from the IS-LM model?
answer
By showing equilibrium income at any given price level.
question
Why does the AD curve slope downward?
answer
Because a lower price level:
1. increases real money balances,
2. lowers the interest rate,
3. stimulates investment spending, and
4. thereby raises equilibrium income.
1. increases real money balances,
2. lowers the interest rate,
3. stimulates investment spending, and
4. thereby raises equilibrium income.
question
What direction does expansionary fiscal policy shift the IS curve?
answer
To the right.
question
What is expansionary fiscal policy?
answer
An increase in government purchases or a decrease in taxes.
question
What are the results of the IS curve shifting to the right?
answer
An increased interest rate and an increase in income.
question
An increase an income resulting in the IS-LM model represents a ______ shift in the AD curve.
answer
Rightward.
question
Expansionary monetary policy shifts the LM curve ______.
answer
Downward.
question
What are the effects of a downward shift in the LM curve?
answer
Lower interest rate
increased income
increased income
question
What are the effects of an upward shift in the LM curve?
answer
Raises interest rate,
Lowers income,
Shifts AD curve to the Left.
Lowers income,
Shifts AD curve to the Left.
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
