Question 1

A downward-sloping investment function yields a falling IS curve, but a downward-sloping demand for real money balance curve yields a rising LM curve. Why?

Accepted Answer

The answer of A downward-sloping investment function yields a falling...

Question 2

The IS-LM model simultaneously determines equilibrium in two markets.
a.Which two markets?
b.What two variables adjust to bring equilibrium in the markets?

Accepted Answer

The answer of The IS-LM model simultaneously determines equilibrium in...

Question 3

Assume an economy where the consumption function is defined as C = CC + cY, and the investment function is defined as I = mr, where Y is total income, and r is the interest rate. What does the slope of the IS curve depend on?

Accepted Answer

The answer of Assume an economy where the consumption function...

Question 4

The demand for money helps determine the equilibrium level of the interest rate, even though holding money does not earn any interest income. How is this possible?

Accepted Answer

The answer of The demand for money helps determine the...

Question 5

Assume that planned expenditure consists of consumption, investment, and government expenditures only, and that investment and government expenditures are fixed. Further, assume that consumption C = c (Y - tY), where tY denotes taxes as a function of income. Calculate the equilibrium level of Y and the government expenditure multiplier.

Accepted Answer

The answer of Assume that planned expenditure consists of consumption,...

Question 6

Assume that a government decides to maintain a constant interest rate in the money market and adjusts the money supply accordingly. What would be the impact of such a policy on the LM curve and on the IS curve?

Accepted Answer

The answer of Assume that a government decides to maintain...

Question 7

Compare the predicted impact of an increase in the money supply in the liquidity preference model versus the impact predicted by the quantity theory and the Fisher effect. Can you reconcile this difference?

Accepted Answer

The answer of Compare the predicted impact of an increase...

Quiz 11: Aggregate Demand I: Building the Islm Model

A downward-sloping investment function yields a falling IS curve, but a downward-sloping demand for real money balance curve yields a rising LM curve. Why?

The IS-LM model simultaneously determines equilibrium in two markets. a.Which two markets? b.What two variables adjust to bring equilibrium in the markets?

Assume an economy where the consumption function is defined as C = CC + cY, and the investment function is defined as I = mr, where Y is total income, and r is the interest rate. What does the slope of the IS curve depend on?

The demand for money helps determine the equilibrium level of the interest rate, even though holding money does not earn any interest income. How is this possible?

Assume that a government decides to maintain a constant interest rate in the money market and adjusts the money supply accordingly. What would be the impact of such a policy on the LM curve and on the IS curve?

Compare the predicted impact of an increase in the money supply in the liquidity preference model versus the impact predicted by the quantity theory and the Fisher effect. Can you reconcile this difference?