test 2 pt 3

Question 1

fiscal policy= tax and gov spending

expansionary
contractionary

Answer 1

tax decrease; gov spending increase

tax increase; gov spending decrease

Question 2

LM
increase in income;
decrease in income;

Increase IR;
decrease IR;

Answer 2

increases demand for money
decreases demand for money

save more; less spending (upward)
Save less; more spending (downward)

Question 3

Factors that reduce the MS

Answer 3

Devaluation
inflation rate

Question 4

a change on income (Y);
a change in price;

• these shifts create movements along the LM curve.
• application of monetary policy shifts LM

Answer 4

shifts money demand
shifts money supply

Question 5

A contraction in the money supply raises the _______

Why? Because a higher interest rate is needed to convince people to hold a smaller quantity of real balances. As a result of the decrease in the money supply, LM SHIFTS ______

Answer 5

interest rate

upward

• More MS= shift right
• Less MS= shift Left

Question 6

The intersection of the IS and LM curves represents simultaneous equilibrium in the …… for given values of government spending, taxes, the money supply, and the price level.

Answer 6

market for goods and services and in the market for real money balances