SOLVED

31) If the LM curve is subject to wider fluctuations than the IS curve, the Federal Reserve could minimize GDP fluctuations by targeting A) money demand. B) money supply. C) the interest rate. D) the price level. 32) Which of the following is not generally discussed at a “special case” of IS-LM analysis? A) Horizontal IS B) Vertical IS C) Horizontal LM D) Vertical LM 33) The assumption of variable velocity translates to, in IS-LM analysis, __________ curves. A) downward sloping IS B) vertical IS C) upward sloping LM D) vertical LM 34) With a change in the money supply, a vertical LM curve shifts a horizontal distance equal to A) that change. B) that change times velocity. C) that change divided by velocity. D) that change times the simple Keynesian multiplier. 35) “If the money supply rises by $1 billion, GDP will rise until it alone increases the quantity of money demanded by $1 billion.” This describes the situation when A) an IS curve shifts against a horizontal LM curve. B) an IS curve shifts against a vertical LM curve. C) a vertical LM curve shifts against an IS curve. D) a horizontal LM curve shifts against an IS curve. 36) With an upward sloping LM curve, a falling interest rate __________ money demand, so that an expansionary monetary policy is __________ than in the case of a vertical LM curve. A) raises; stronger B) raises; weaker C) has no effect on; stronger D) has no effect on; weaker 37) With an upward sloping LM curve, a rising interest rate __________ money demand, so that a contractionary monetary policy is __________ than in the case of a vertical LM curve. A) raises; stronger B) raises; weaker C) lowers; stronger D) lowers; weaker 38) If investment has a low sensitivity to the interest rate, the IS curve is rather __________, so that monetary policy has a __________ effect on GDP. A) flat; strong B) flat; weak C) steep; strong D) steep; weak 39) If investment has a high sensitivity to the interest rate, the IS curve is rather __________, so that monetary policy has a __________ effect on GDP. A) flat; strong B) flat; weak C) steep; strong D) steep; weak 40) In a liquidity trap, expansionary monetary policy has __________ effect on output, and expansionary fiscal policy has __________ effect on output. A) no; no B) no; a strong C) a strong; no D) a strong; strong