Exam 26: The ISLM Model

The LM curve will be vertical and fiscal policy ineffective when

Using the long-run ISLM model,explain and demonstrate graphically the neutrality of money,for the case of an increase in the money supply.

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

According to the liquidity preference theory,the demand for money is ________ related to aggregate output and ________ related to interest rates.

In the long-run ISLM model and with everything else held constant,the long-run effect of an expansionary monetary policy is to

As interest rates rise,the opportunity cost of holding money ________ and the demand for money ________.

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.

Because inflation was not a serious problem during the Great Depression,Keynes's analysis assumed

In the long-run the ISLM model predicts that ________ can change real output.

Which of the following statements concerning Keynesian ISLM analysis is true?

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.

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

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

Everything else held constant,if aggregate output is to the ________ of the LM curve,then there is an excess ________ of money which will cause the interest rate to rise.

Despite an expansionary monetary policy,an economy experiences a recession.Everything else held constant,the recession could occur in spite of the rightward shift of the LM curve if

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

In the money market,a condition of excess demand for money can be eliminated by a ________ in aggregate output or a ________ in the interest rate,everything else held constant.

Everything else held constant,if aggregate output is to the right of the LM curve,then there is an excess ________ of money which will cause the interest rate to ________.

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

The money market is in equilibrium