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Intermediate Macroeconomics Chapter 12
Terms in this set (18)
What happens to the IS and LM curves when there's a decrease in government spending?
Move down the LM curve and the IS curve shifts downward to form the new equilibrium point
Using the IS-LM analysis, if the LM curve is not horizontal, the multiplier for an increase in government spending is ______ for an increase in government purchases using the Keynesian-cross analysis
Smaller than the multiplier
In the IS-LM model when M/P rises, in the short-run equilibrium, in the usual case, what happens to the interest rate?
In the IS-LM model when M/P rises, in the short-run equilibrium, in the usual case, what happens to the output?
real money amount
In the IS-LM model when M remains constant but P rises, in the short-run equilibrium, in the usual case what happens to the interest rate?
In the IS-LM model when M remains constant but P rises, in the short-run equilibrium, in the usual case what happens to output?
Monetary Transmission Mechanism
-When the Federal Reserve decreases the money supply, the public sell bonds and the interest rate rises
-Decrease in investment and income
What happens to IS and LM when there is an increase in government spending?
-IS curve shifts upwards
-Federal reserve increase the money supply (LM curve shifts down)
An increase in consumer saving for any given level of income will shift the:
IS curve downwards and to the left
An economic change that does not shift the aggregate demand curve is a change in:
The price level
Starting from a short-run equilibrium greater than the natural rate of output, as the economy returns to a long-run equilibrium:
Output will decrease, but the price level will increase
The slope of the IS curve depends on:
The interest sensitivity of investment and the marginal propensity to consume
If the demand function for money is M/P=0.5Y-100r, then the slope of the LM curve is:
If money demand does not depend on the interest rate, then the LM curve is ____, and _____ policy has no effect on output
The use of government spending and taxation to influence the economy
What does an increase in the money supply do?
Lowers the interest rate and increases income in the short run but leaves both unchanged in the long run
-Control of the quantity of money available in an economy and the channels by which new money is supplied
-Central bank aims to influence macroeconomic factors including inflation, the rate of consumption, economic growth, and overall liquidity (Federal Reserve)
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