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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 fall.
A) right; supply
B) right; demand
C) left; supply
D) left; demand
Answer: C
Diff: 2 Type: MC Page Ref: 3
Skill: Recall
Objective List: WEB CHAPTER: The ISLM Model
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
Discuss the IS-LM curves and how the equilibrium in the goods and money market is
achieved.
Answer: The IS curve shows the combination of interest rates and aggregate output such that the
goods market is in equilibrium. The LM curve shows combinations of interest rates and output
such that the money market is in equilibrium. At the intersection of the IS-LM curves is the
interest rate and aggregate output that BOTH the goods and money markets are both in
equilibrium and ceteris paribus, there is no pressure to move from that point. At any other point,
one of the markets is not in equilibrium and there is pressure to move towards the IS-LM
intersection.
Diff: 2 Type: SA Page Ref: 4
Skill: Recall
Objective List: WEB CHAPTER: The ISLM Model