Chapter 2. Deriving the IS and LM Curves

1. An increase in the interest rate (r) causes planned expenditure (E) to _____ and equilibrium output to _____.

2. An increase in government spending causes the planned expenditure schedule to shift ____ and therefore the IS curve shifts ____.

3. According to the theory of liquidity preference, an increase in income (Y) will ___ money demand and ____ the interest rate.

4. An increase in the money supply (M) will ___ the interest rate and therefore the LM curve shifts _____.