Handout 10-

[Q1] If the economy is on the LM curve, but is to the right of the IS curve, then the ________ market is in equilibrium, but aggregate ________ exceeds aggregate ________.

A) goods; output; demand

B) goods; demand; output

C) money; output; demand

D) money; demand; output

[Q2] An increase in government spending causes the equilibrium level of aggregate output to ________ at any given interest rate and shifts the ________ curve to the ________, everything else held constant.

A) rise; LM; right

B) rise; IS; right

C) fall; IS; left

D) fall; LM; left

[Q3] If the Federal Reserve conducts open market _______, the money supply _______, shifting the LM curve to the left, everything else held constant.

A) purchases; decreases

B) sales; decreases

C) purchases; increases

D) sales; increases

[Q4] An autonomous increase in money demand, other things equal, shifts the _______ curve to the_______.

A) IS; right

B) IS; left

C) LM; left

D) LM; right

[Q5] Which of the following statements concerning Keynesian IS-LM analysis is true?

A) Expansionary fiscal policy will cause the interest rate to fall.

B) A fall in the money supply shifts the LM curve to the right.

C) Changes in net exports arising from a change in interest rates causes a shift in the IS curve.

D) For a given change in taxes, the IS curve will shift less than for an equal change in government spending.

[Q6] A decrease in autonomous consumer expenditure causes the equilibrium level of aggregate output to ______ at any given interest rate and the shifts the ______ curve to the ______, everything else held constant.

A) rise; IS; right

B) fall; LM; left

C) rise; LM; right

D) fall; IS; left

[Q7] When the central bank ______ the money supply, the LM curve shifts to the right, interest rates ______, and equilibrium aggregate output ______, everything else held constant.

A) Increases; fall; increases

B) decreases; rise; decreases

C) Increases; rise; decreases

D) decreases; fall; increases

[Q8] Aggregate output and the interest rate are ______ related to government spending and are ______ related to taxes.

A) negatively; negatively

B) positively; positively

C) positively negatively

D) negatively; positively