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In the IS-MP framework a contractionary fiscal policy causes aggregate output to ____
and the interest rate to ____, everything else held constant.
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase
Answer: C
Diff: 2 Type: MC Page Ref: 564
Skill: Recall
Objective List: 23.2 Explain how the IS - MP model can be used to address questions about the
effectiveness of monetary and fiscal policy
Everything else held constant, an expansionary ____ policy will cause the interest rate
to rise, while an expansionary ____ policy will cause the interest rate to fall.
A) monetary; monetary
B) monetary; fiscal
C) fiscal; monetary
D) fiscal; fiscal
Answer: C
Diff: 2 Type: MC Page Ref: 564
Skill: Recall
Objective List: 23.2 Explain how the IS - MP model can be used to address questions about the
effectiveness of monetary and fiscal policy
Aggregate output and the interest rate are ____ related to government spending and are
____ related to taxes.
A) positively; positively
B) positively; negatively
C) negatively; positively
D) negatively; negatively
Answer: B
Diff: 2 Type: MC Page Ref: 564
Skill: Recall
Objective List: 23.2 Explain how the IS - MP model can be used to address questions about the
effectiveness of monetary and fiscal policy
An increase in spending that results from expansionary ____ policy causes the interest
rate to ____, everything else held constant.
A) fiscal; rise
B) fiscal; fall
C) incomes; rise
D) incomes; fall
Answer: A
Diff: 2 Type: MC Page Ref: 564
Skill: Recall
Objective List: 23.2 Explain how the IS - MP model can be used to address questions about the
effectiveness of monetary and fiscal policy