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Questions and Answers
In the IS-LM model, what does the LM curve represent?
Why is the LM curve upward sloping according to the text?
What does the equation M/P = L(r, Y) represent in the context of the economy?
How does an increase in income impact the LM curve?
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What is the role of interest rates in restoring equilibrium in the money market?
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How is equilibrium defined in the IS-LM model?
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What characterizes the short run in the IS-LM model?
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Which component is part of planned expenditure in the Keynesian Cross model?
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Why does an increase in taxes lead to a reduction in income in the short run?
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What happens to output and income when firms face an unplanned inventory buildup?
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What does the tax multiplier indicate when it comes to fiscal policy?
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How does the IS-LM model determine income and interest rates in the short run?
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What motivates firms to increase investment spending in the IS-LM model?
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In the IS-LM model, what is the consequence of a fall in the interest rate on total planned spending (PE)?
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How does a fall in the interest rate affect the equilibrium output (Y) in the goods market according to the IS-LM model?
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What does the IS curve represent in the IS-LM model?
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Which curve helps us understand the relationship between interest rate and income through the good markets in the IS-LM model?
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What is needed to accurately determine both interest rate and income in the IS-LM model?
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