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Exam 4: Monetary and Fiscal Policy in the Is-Lm Model

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Question 51

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"Crowding-out" occurs in the IS-LM model as rising government spending requires a ________ in the interest rate in order to ________ the demand for money at the new equilibrium, thus ________ planned private investment.

A) rise, keep constant, lowering
B) rise, raise, lowering
C) rise, lower, raising
D) fall, keep constant, raising
E) fall, raise, lowering

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Question 52

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Figure 4-8 -Given the level of real GDP, the equilibrium level of the interest rate depends on the

A) demand for money.
B) monetary-fiscal policy mix.
C) size of the multiplier.
D) extent of crowding out.

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Question 53

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Figure 4-4 -In figure above, if the interest rate falls from 10% to 7.5% and this causes businesses to become more optimistic about future investment conditions, we would observe that planned investment would

Monetary policy will have a large income effect provided the

The September 11 attacks had the effect of shifting the

If the IS curve is negatively sloped and the LM curve is positively sloped

Figure 4-8 -The fiscal-policy multiplier will be greater

Complete "crowding-out" describes the situation in the economy when

Suppose the government increases its expenditures by $100 billion and simultaneously reduces the money supply by $100 billion. We definitely know that

On a diagram with "calories consumed per day" on the horizontal axis and "exercise per day" on the vertical axis, we can draw a line along which your body weight at this moment will remain constant. This line is analogous to how ________ for changing values of the variables on the two axes.

The three functions of money are

To "accommodate" an expansionary fiscal policy, the Fed ________ the money supply in order to hold ________ constant.

Figure 4-1 -If there is unplanned inventory decumulation there is excess

If the Fed's goal is to hold income constant, an expansionary fiscal policy must be accompanied by ________ monetary policy, and the Fed must allow the interest rate to ________ significantly.

On a money demand diagram with the interest rate on the vertical axis, the real money balance demand schedule would be a vertical line under the assumption that

With normally-sloped IS and LM curves, an increase in government spending ________ the interest rate, which ________ autonomous planned expenditure, resulting in a final increase in income ________ than what the government spending increase would have produced in the Chapter 3 model.

As income and production rise, the demand for real money balances will ________ and interest rates will ________.

A change in interest rates ________, while a change in income ________ the real money demand schedule.

When the demand for money depends only on real income, the resulting ________ LM curve causes fiscal policy to have a ________ effect on income.

For a given level of equilibrium GDP, a tight-money/easy-fiscal policy mix compared with easy-money/tight-fiscal policy mix implies a