IS-LM Model

Question 1

The money demand curve will shift to the right when:

Answer 1

There is an increase in income

Question 2

An increase in the interest rate will cause

Answer 2

A reduction in demand for reserves and currency

Question 3

What happens as an economy moves left on an is curve?

Answer 3

An increase in the interest rate and a decrease in investment spending

Question 4

If there is a liquidity trap, the best way to increase output is

Answer 4

An increase in government spending

Question 5

If fiscal policy makers implement a policy to reduce the size of the budget deficit, what will occur?

Answer 5

Investment spending may increase, decrease or not change

Question 6

In the short run, an increase in government spending

Answer 6

Affects both the level and composition of output

Question 7

The marginal propensity to consume represents

Answer 7

The change in consumption caused by a one-unit change in disposable income