Lecture 3 - The IS LM Closed Economy Equilibrium Flashcards
1
Q
Monetary contraction, or monetary tightening, refers to…
A
A decrease in the money supply.
2
Q
An increase in the money supply is called…
A
Monetary expansion.
3
Q
Monetary policy does not affect the…
A
IS curve, only the LM curve. For example, an increase in the money supply shifts the LM curve down.
4
Q
Fiscal policy is operated via changes in…
A
T, G, and TR.
5
Q
Fiscal contraction, or fiscal consolidation, refers to fiscal policy that…
A
Reduces the budget deficit.
6
Q
An increase in the deficit is called a…
A
Fiscal expansion.
7
Q
Fiscal policy shifts the…
A
IS curve.
8
Q
As the adjustment of output takes time, we need to reintroduce dynamics…
A
- Consumers are likely to take time to adjust their consumption following a change in disposable income.
- Firms are likely to take time to adjust investment spending
following a change in their sales. - Firms are likely to take time to adjust investment spending
following a change in the interest rate. - Firms are likely to take time to adjust production following
a change in their sales.
