Econ 103 Chapter 12 (final)

According to the macreconometric model deveolped by Data Resources incorporated, if taxes are increased by 100 billion, but the money supply is held constant, then GDP will fall by about

$25 billion

The U.S. recession of 2001 can be explained in part by a declining stock market and terrorist attacks. Both of these shocks can be represented in the IS-LM model by shifting the ___ curve to the ___.

Is;left

The Interaction of the IS curve and the LM curve together determine

The interest rate and the level of output

The monetary transmission mechanism in the IS-LM model is the process whereby an increase in the money supply increases the demand for goods and services:

by lowering the interest rate so that investment spending increases.

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

investment

The reason that the income response to a fiscal expansion is generally less the IS-LM model than it is in the Keynesian-cross model is that the Keynesian-cross model assumes that

investment is not affected by the interest rate whereas in the IS-LM model fiscal expansion raises the interest rate and crowds out investment

An economic change that does not shift the aggregate demand curve is a change in:

the price level