chapter 11

The government-purchases multiplier indicates how much ______ change(s) in response to a $1 change in government purchases.

income

An explanation for the slope of the LM curve is that as:

income rises, money demand rises, and a higher interest rate is required.

The theory of liquidity preference implies that:

as the interest rate rises, the demand for real balances will fall.

In the Keynesian-cross model, a decrease in the interest rate ______ planned investment spending and ______ the equilibrium level of income.

increases; increases

In the Keynesian-cross model, the equilibrium level of income is determined by:

planned spending.

The IS-LM model takes ______ as exogenous.

the price level

A decrease in the real money supply, other things being equal, will shift the LM curve:

upward and to the left.

Changes in monetary policy shift the:

LM curve.

The IS and LM curves together generally determine:

both income and the interest rate.

According to the theory of liquidity preference, tightening the money supply will ______ nominal interest rates in the short run, and, according to the Fisher effect, tightening the money supply will ______ nominal interest rates in the long run.

increase; decrease

In the Keynesian-cross model, if government purchases increase by 250, then the equilibrium level of income:

increases by more than 250.

According to the theory of liquidity preference, the supply of real money balances:

is fixed.

The theory of liquidity preference implies that, other things being equal, an increase in the real money supply will:

lower the interest rate.

The IS-LM model is generally used:

only in the short run.

The LM curve shows combinations of ______ that are consistent with equilibrium in the market for real money balances.

the interest rate and the level of income