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    Changes in the shapes and locations of IS and LM curves

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    1. Discuss the factor(s) that determine the slope of the LM curve and whether an
    increase in theses factor(s) will make the curve flatter or steeper.

    2. In words what does the IS curve represent?

    3. What factor(s) causes the LM curve to shift?

    4. In words what does the LM curve represent?

    5. Is the interest rate we use in the IS-LM model real or nominal? How does your
    answer pertain to the shape of the aggregate supply curve?

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    Solution Preview

    1. It is determined by k (the income elasticity of money demand) and h (the interest elasticity of money demand).
    Higher k implies ...

    Solution Summary

    Changes in the shapes and locations of IS and LM curves