The IS-LM Model Predicts That a Temporary Beneficial Supply Shock

question 44

Multiple Choice

The IS-LM model predicts that a temporary beneficial supply shock

• A)increases output, national saving, and investment, but not the real interest rate.
• B)increases output, national saving, and the real interest rate, but not investment.
• C)increases the real interest rate, investment, and output, but not national saving.
• D)increases output, national saving, investment, and the real interest rate.

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Definitions:

Classical Economists

Economists of the late 18th and 19th centuries who believed in free markets, minimal government intervention, and the importance of competition.

Aggregate Demand

This term refers to the total amount of goods and services demanded in the economy at a given overall price level and in a given time period.

Laissez Faire

An economic policy or attitude of letting markets operate without government interference or regulation.

Recessions

Periods of temporary economic decline during which trade and industrial activity are reduced, typically recognized by a fall in GDP in two successive quarters.