Exam 28: The ISLM Model

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

The ________ describes the combinations of interest rates and aggregate output for which the quantity of money demanded equals the quantity of money supplied.

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

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.

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

If the ________ curve is relatively more unstable than the ________ curve,an interest rate target is preferred.

The money market is in equilibrium ________.

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

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

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

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

The LM curve will be vertical and fiscal policy ineffective when ________.

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

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

If the economy is on the IS curve,but is to the left of the LM curve,then the ________ market is in equilibrium,but the interest rate is ________ the equilibrium level.

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

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

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

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.

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?