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Chapter 22 IS-LM in Action

Chapter Objectives

By the end of this chapter, students should be able to:

  1. Explain what causes the liquidity preference–money (LM) curve to shift and why.
  2. Explain what causes the investment-savings (IS) curve to shift and why.
  3. Explain the difference between monetary and fiscal stimulus in the short term and why the difference is important.
  4. Explain what happens when the IS-LM model is used to tackle the long term by taking changes in the price level into account.
  5. Describe the aggregate demand curve and explain what causes it to shift.