Chapter 13

The aggregate demand curve generally slopes downward and to the right because, for any given money supply M, a higher price level P causes a _____ real money supply M / P, which _____ the interest rate and _____ spending.

lower; raises; reduces

An increase in the money supply:

lowers the interest rate and increases income in the short run but leaves both unchanged in the long run.

A change in income in the IS-LM model resulting from a change in the price level is represented by a _____ aggregate demand curve, while a change in income in the IS-LM model for a given price level is represented by a _____ aggregate demand curve.

movement along the; shift in the

A movement along an aggregate demand curve corresponds to a change in income in the IS-LM model _____, while a shift in an aggregate demand curve corresponds to a change in income in the IS-LM model _____.

resulting from a change in the price level; at a given price level

The LM curve is steeper the _____ the interest sensitivity of money demand and the _____ the effect of income on money demand.

smaller; greater

The interaction of the IS curve and the LM curve determines:

the equilibrium level of the interest rate and output.

The slope of the IS curve depends on:

the interest sensitivity of investment and the marginal propensity to consume.

In the IS-LM model in a closed economy, an increase in government spending increases the interest rate and crowds out:

investment.

In the IS-LM model when M / P rises, in short-run equilibrium, in the usual case the interest rate _____ and output _____.

falls; rises

A liquidity trap occurs when:

interest rates fall so low that monetary policy is no longer effective.

A given increase in taxes shifts the IS curve more to the left the:

larger the marginal propensity to consume.

An increase in consumer saving for any given level of income will shift the:

IS curve downward and to the left.