SOLVED

25.4Â Â Appendix: Interest Rates Versus the Money Supply Under Uncertainty 1) Monetarists believe in a relatively unstable __________ curve, and thus recommend a monetary policy targeting the __________. A) IS; money supply B) IS; interest rate C) LM; money supply D) LM; interest rate 2) Keynesians believe in a relatively stable __________ curve, and thus recommend a monetary policy targeting the __________. A) IS; money supply B) IS; interest rate C) LM; money supply D) LM; interest rate 3) The quantity of money demanded suddenly increases at every combination of GDP and interest rate. If the Fed holds to an unchanged money supply target, the interest rate __________ and GDP __________. A) rises; falls B) rises; remains unchanged C) remains unchanged; remains unchanged D) remains unchanged; falls 4) The quantity of money demanded increases at every combination of GDP and interest rate. If the Fed holds to an unchanged interest rate target, the interest rate __________ and GDP __________. A) rises; falls B) rises; remains unchanged C) remains unchanged; remains unchanged D) remains unchanged; falls 5) The quantity of money demanded decreases at every combination of GDP and interest rate. If the Fed holds to an unchanged money supply target, the interest rate __________ and GDP __________. A) rises; rises B) rises; falls C) falls; rises D) falls; falls 6) The quantity of money demanded increases at every combination of GDP and interest rate. If the Fed holds to an unchanged interest rate target, the interest rate __________ and GDP __________. A) rises; falls B) rises; remains unchanged C) remains unchanged; remains unchanged D) remains unchanged; falls 7) The amount of investment demand at each interest rate falls. If the Fed holds to an unchanged interest rate target, the change in GDP is __________ if it had held to an unchanged money supply target. A) greater than B) less than C) the same as 8) The amount of investment demand at each interest rate suddenly falls. If the Fed holds to an unchanged money supply target, the change in GDP is __________ if it had held to an unchanged interest rate target. A) greater than B) less than C) the same as 9) Suppose the IS curve shifts back and forth. With a flat LM curve you get __________ variability in the output and __________ variability in the interest rate than you get with a steep LM curve. A) more; more B) more; less C) less; more D) less; less 10) Suppose the IS curve shifts back and forth. With a steep LM curve you get __________ variability in the interest rate and __________ variability in output than you get with a flat LM curve. A) more; more B) more; less C) less; more D) less; less 11) The economy tends to be more stable with a __________ LM curve causing interest rates to be rather __________ to shifts in the IS curve. A) steeper; sensitive B) steeper; insensitive C) flatter; sensitive D) flatter; insensitive 12) The economy tends to be less stable with a __________ LM curve causing interest rates to be rather __________ to shifts in the IS curve. A) steeper; sensitive B) steeper; insensitive C) flatter; sensitive D) flatter; insensitive