Exam 28: The ISLM Model

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.

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 fall.

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

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.

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.

In the Keynesian model the quantity of money demanded is ________ related to income and ________ related to the interest rate.

The money market is in equilibrium ________.

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 fall.

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

In the Keynesian model the quantity of money demanded is ________ related to income and ________ related to the interest rate.

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

The situation in which expansionary fiscal policy does not lead to a rise in aggregate output is referred to as ________.

If the Fed adopts a policy of pegging the interest rate,a ________ in government spending forces the Fed to increase the money supply to prevent interest rates from ________.

If the ________ curve is relatively more unstable than the ________ curve,a money supply target is preferred.

The less interest-sensitive is money demand,the ________.

If the quantity of money demanded is not affected by changes in the interest rate,the LM curve is ________ and fiscal policy will be ________.

Using the appropriate diagram,show that fiscal policy is ineffective in the long-run.

As aggregate output rises,the demand for money ________ and the interest rate ________,so that money demanded equals money supplied and the money market is in equilibrium.

If the economy is on the IS curve,but is to the left of the LM curve,aggregate output will ________ and the interest rate will ________.

The key assumption in the ISLM model is that ________.