I. Identification __________1. Shows combination of interest rates and the levels of output such that planned spending equals income. __________2. Monetary policy characterized by a decrease in money supply that results to a higher interest rate. __________3. Shows all combinations of interest rates and levels of income such that the demand for real balances is equal to the supply. __________4. It occurs when expansionary fiscal policy causes interest rates to rise, thereby reducing private spending, particularly investment. __________5. A policy on the regulation of the supply of money in the circulation. __________6. The policy of the government with regard to the level of government purchases, the level of transfers and the tax structures.
I. Identification
__________1. Shows combination of interest rates and the levels of output such that planned spending equals income.
__________2.
__________3. Shows all combinations of interest rates and levels of income such that the demand for real balances is equal to the supply.
__________4. It occurs when expansionary fiscal policy causes interest rates to rise, thereby reducing private spending, particularly investment.
__________5. A policy on the regulation of the supply of money in the circulation.
__________6. The policy of the government with regard to the level of government purchases, the level of transfers and the tax structures.
II. Modified TRUE or FALSE: Write TRUE if the statement is correct and if the statement is false, choose the word or group of words that makes the statement false and write the correct word or group of words to make the statement correct.
1. The lower the interest rate, the more costly it is hold money and accordingly, the less cash it will held at each level of income.__________
2. The IS curve is negatively sloped because an increase in the interest rate reduces planned investment spending and therefore, increases aggregate demand, thus reducing the level of income.__________
3. The steeper the IS curve, the less sensitive investment spending.__________
4. The greater the responsiveness of the demand for money to the interest rates, the steeper the LM curve.__________
5. The less interest-sensitive money demand is, the less effective monetary policy is relative to fiscal policy.__________
6. A decline in the money supply raises equilibrium output but lowers the equilibrium interest rate.__________
7. Contractionary fiscal policy raises equilibrium output and interest rate.__________
8. Under the classical model, monetary policy is effective than fiscal policy in influencing the economy.__________
9. Increase in government spending leads to higher output and interest rates.__________
10. Increase in money supply leads to higher output and lower interest rates.__________
11. Holding everything else constant, an increase in wealth raises the quantity demanded of an asset (bonds). _________________
12. The quantity demanded of an asset is positively related to its expected return relative to alternative assets (bonds). ________________
13. Higher government deficits increase the supply of bonds, whereas government surpluses decrease the supply of bonds. _________________
14. Increased liquidity of bonds results to an increased in the demand for bonds, holding everything else constant. ______________
15. LM curve must slope upward to the right because, other things equal, a higher level of income means a smaller demand for money, and there must accordingly be a higher interest rate to produce an offsetting lower demand for money
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