# Econ 102: Developing the IS-LM Model Quiz

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## 18 Questions

### In the IS-LM model, what does the LM curve represent?

Equilibrium in the money market

### Why is the LM curve upward sloping according to the text?

An increase in income raises money demand

### What does the equation M/P = L(r, Y) represent in the context of the economy?

Money demand as a function of interest rates and income

### How does an increase in income impact the LM curve?

Shifts the LM curve to the right

### What is the role of interest rates in restoring equilibrium in the money market?

Interest rates must rise to restore equilibrium in the money market

### How is equilibrium defined in the IS-LM model?

Equilibrium in the goods market and money market

### What characterizes the short run in the IS-LM model?

Sticky prices and demand affecting supply

### Which component is part of planned expenditure in the Keynesian Cross model?

Government spending

### Why does an increase in taxes lead to a reduction in income in the short run?

It decreases consumption and planned expenditure

### What happens to output and income when firms face an unplanned inventory buildup?

Output decreases and income falls

### What does the tax multiplier indicate when it comes to fiscal policy?

Tax increases reduce consumption and income

### How does the IS-LM model determine income and interest rates in the short run?

By keeping prices fixed and analyzing the impact of changes in fiscal and monetary policy

### What motivates firms to increase investment spending in the IS-LM model?

A fall in the interest rate

PE increases

Output increases

### What does the IS curve represent in the IS-LM model?

Relationship between interest rate and output

LM curve

### What is needed to accurately determine both interest rate and income in the IS-LM model?

Multiple equations

Test your knowledge on developing the IS-LM model, understanding the difference between the long run and short run, and how the Keynesian cross incorporates mathematical models in economics.

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