Exam 28: The ISLM Model

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 ________.

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 rise.

Discuss the IS-LM curves and how the equilibrium in the goods and money market is achieved.

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 ________.

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

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

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.

Crowding out will be more pronounced the closer to vertical is the ________.

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

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 ________.

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.

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

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

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

In the long-run ISLM model and with everything else held constant, the long-run effect of a cut in government spending is to ________ real output and ________ the interest rate.

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.

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

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 ________.