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Everything else held constant, if aggregate output is to the ____ of the LM curve, then
there is an excess ____ of money which will cause the interest rate to rise.
A) right; supply
B) right; demand
C) left; supply
D) left; demand
Answer: B
Diff: 2 Type: MC Page Ref: 3
Skill: Recall
Objective List: WEB CHAPTER: The ISLM Model
Describe the key assumption that drives Keynes's ISLM model.
Answer: Keynes analysis was created during the Great Depression period when inflation was
not serious. As a result of this, Keynes assumed that the price level is fixed and therefore
inflation is zero. The real interest rate equals the nominal interest rate and there is no need to
distinguish between the two.
Diff: 2 Type: SA Page Ref: 1
Skill: Recall
Objective List: WEB CHAPTER: The ISLM Model
28.2 ISLM Approach to Aggregate Output and Interest Rates
Macroeconomic equilibrium requires ____.
A) equilibrium in the goods market
B) equilibrium in the money market
C) equilibrium in both the goods and money markets
D) equilibrium in neither the goods nor the money market
Answer: C
Diff: 2 Type: MC Page Ref: 4
Skill: Recall
Objective List: 28.2 Use IS-LM to determine aggregate output
When the IS and LM curves are combined in the same diagram, the intersection of the two
curves determines the equilibrium level of ____ as well as the ____.
A) aggregate output; price level
B) aggregate output; interest rate
C) money supply; price level
D) consumer expenditures; interest rate
Answer: B
Diff: 2 Type: MC Page Ref: 4
Skill: Recall
Objective List: 28.2 Use IS-LM to determine aggregate output