the economics of money, banking, and financial markets

905 #

© 2014 Pearson Canada Inc.#

24. When is an interest-rate target preferred to the targeting of the money supply? support your
    answer with the appropriate diagram.
    Answer: The students must draw the diagram from page 15 (Figure 9) of the textbook where
    they show diagramatically that an interest rate target is preferred in terms of output fluctuation,
    when the LM curve is more unstable than the IS curve is.
    Diff: 3 Type: SA Page Ref: 15
    Skill: Recall
    Objective List: WEB CHAPTER: The ISLM Model

28.6 ISLM in the Long Run

1. 
   

   In the long-run ISLM model and with everything else held constant, an increase in the money
   supply leaves the level of output and interest rates unchanged, an outcome called ____.
   A) interest rate overshooting
   B) long-run money neutrality
   C) long-run crowding out
   D) the long-run Phillips curve
   Answer: B
   Diff: 2 Type: MC Page Ref: 17
   Skill: Recall
   Objective List: WEB CHAPTER: The ISLM Model

   
   


2. 
   

   In the long-run ISLM model and with everything else held constant, the long-run effect of an
   expansionary monetary policy is to ____.
   A) increase real output and the interest rate
   B) not change either real output or the real interest rate
   C) increase real output and leave the interest rate unchanged
   D) increase the interest rate and leave real output unchanged
   Answer: B
   Diff: 2 Type: MC Page Ref: 17
   Skill: Recall
   Objective List: WEB CHAPTER: The ISLM Model

   
   


3. 
   

   The long-run neutrality of money refers to the fact that in the long run, monetary policy
   ____.
   A) changes only real output
   B) changes only the real interest rate
   C) changes both real output and the real interest rate
   D) has no effect on either real output or the real interest rate
   Answer: D
   Diff: 2 Type: MC Page Ref: 17
   Skill: Recall
   Objective List: WEB CHAPTER: The ISLM Model