Question

Keynesian Cross

Please fill in the blanks. What is the effect the change listed in the first column has on LM and Real Money?

	PE	IS	LM	Real Money
Government Increase	Shifts Curve Up	Shifts right and up
Government Decrease	Shifts Curve Down	Shifts left and down
Tax Increase	Shifts Curve Down	Shifts left and down
Tax Decrease	Shifts Curve Up	Shifts right and up
Interest Rate Increase	Shifts Curve Down	moves up the curve
Interest Rate Decrease	Shifts Curve Up	moves down the curve

Answer 1

a) GOvernment icreases purchses will cause a movement along the LM curve and that will move up the curve.

b) This will cause a movement down the curve

c) This will cause a movement down the LM curve and shift the IS curve down and left.

d) Tax decrease will cause a movement up the curve.

e) Interest rate increase will shift the UP and left new equilibrium will be at a higher interest rate and lower quantity.

f) This will shift the LM curve to the right and down.