QUESTIONS FOR REVIEW

Question 11.1

1. Use the Keynesian cross to explain why fiscal policy has a multiplied effect on national income.

Question 11.2

2. Use the theory of liquidity preference to explain why an increase in the money supply lowers the interest rate. What does this explanation assume about the price level?

Question 11.3

3. Why does the IS curve slope downward?

Question 11.4

4. Why does the LM curve slope upward?