Hi Tutor

Which of the following statements is/are correct?

a. To derive the LM curve we change the level of income to determine the effect on the interest rate.

b. The derivation of the LM curve is described by the following chain of events;

Y Ms I Z i.

c. When we derive the LM curve an increase in income will cause an increase in the demand for money, which is represented by the shift of the demand for money curve to the right, and it will cause an increase in the equilibrium interest rate.

d. In deriving the LM curve, we assume that an increase in income shifts the Md curve to the right causing the rate of interest to increase.

1. a, b, c and d

2. Only a, c and d

3. Only b, c and d

4. Only a and d

5. None of the options 1 to 4 is correct

And Then Next Question Is:

Comparing the impact of an increase in government spending in the goods market mode with the impact of an increase in government spending in the IS-LM model:

a. In both models the level of output and income will increase.

b. In both models consumption spending will be higher.

c. The interest rate will be unchanged in the goods market model and lower in the IS-LM model.

d. Investment spending will be unchanged in the goods market model and higher in the IS-LM model.

1. a, b and c

2. b, c and d

3. a, b and d

4. Only a and d

5. Only a and b