Question

1-The intersection between the IS curve and the LM curve determines

2-An increase in money supply shifts the ______ curve to the right, and the aggregate demand curve______

3-In the IS-LM model when government spending rises, the interest rate______ and output_______

4-If taxes are raised, to prevent income from falling the central bank will

5-In the short- run, if IS-LM equilibrium occurs at a level of income below the natural level of output, then in the long-run the price level will ____, shifting the ____curve to the right

Answer 1

1.

The intersection between the IS curve and the LM curve determines the equilibrium real GDP / output and the equilibrium interest rate.

2.

An increase in money supply shifts the LM curve to the right and the Aggregate Demand curve will increase and shift to the right.

3.

In the IS-LM model when government spending rises, the interest rate increases and output increases. Higher Government spending shifts the IS curve to the right.

4.

If taxes are raised, to prevent income from falling the central bank will increase the money supply by either purchasing the government securities or reduce the interest rate so that the borrowing cost can be reduced.

5.

In the short- run, if IS-LM equilibrium occurs at a level of income below the natural level of output, then in the long-run the price level will decrease shifting the LM curve to the right

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