IS-LM Model

What does the “LM” stand for in the IS-LM model?

1. 1. Liquidity-Money. 

   2. Liquidity-Movement

   3. Liability-Money

   4. Liability-Movement

What does the “IS” stand for in the IS-LM model?

1. 1. Investment-Saving.

   2. Income-Supply

   3. Investment-Supply

   4. Income-Saving

What is the IS-LM model?

What is the equation for the IS curve?

According to John Maynard Keynes what economic phenomenon allows the aggregate demand to directly affect the national output or income in the short-run?

1. 1. Sticky prices

   2. Flexible prices

   3. Constant returns to scale

   4. Diminishing marginal returns

In the IS model, a decrease in interest rate will cause investment to ______ which will cause the national output or income to ______

1. 1. Increase; increase

   2. Increase; decrease

   3. Decrease; increase

   4. Decrease; decrease

In the IS model, an increase in consumption will cause the IS curve to ______

1. 1. Shift to the right

   2. Shift to the left

   3. Not change

What is the theory of liquidity preference?

In the IS-LM model, a decrease in interest rate will cause money demand to ______ and the national output or income to ______

1. Increase; increase

2. Increase; decrease

3. Decrease; decrease

4. Decrease; increase

What determines the interest rate according to the theory of liquidity preference?

In the IS model, how does the increase in interest rate affect the national income or output?

1. 1. The increase in interest rate will affect national income or output through investments. 

   2. The increase in interest rate will affect national income or output through savings.

   3. The increase in interest rate will affect national income or output through consumption.

   4. The increase in interest rate will affect national income or output through money supply

In the IS model, a decrease in government purchases will cause the IS curve to ______

1. 1. Shift to the right

   2. Shift to the left

   3. Not change

In the IS-LM model, an increase in interest rate will cause money demand to ______ and the national output or income to ______

1. 1. Increase; increase

   2. Increase; decrease

   3. Decrease; decrease

   4. Decrease; increase

What is the IS curve?

What is the LM curve?