IS-LM Model and Fiscal Policy

Flashcards covering key vocabulary and concepts from the IS-LM model and fiscal policy.

IS Curve

Represents goods market equilibrium, showing the relationship between interest rates and output.

LM Curve

Represents money market equilibrium, showing the relationship between interest rates and real money supply.

Fiscal Policy

Government policy aimed at influencing economic activity through spending and tax adjustments.

Crowding Out Effect

Occurs when increased government spending leads to a decrease in private sector spending.

General Price Level

The average level of prices in the economy, affecting purchasing power and real money supply.

AD Curve

Aggregate demand curve; shows the total quantity of goods and services demanded across all levels of the economy at varying price levels.

Equilibrium in IS-LM Model

Occurs where the IS curve intersects the LM curve, determining equilibrium interest rates and output.

Shifting the IS Curve

Caused by factors that increase consumption (C), investment (I), or government spending (G).

Shifting the LM Curve

Caused by increases in real money supply or decreases in money demand.

Monetary Policy

Central bank policy that manages the supply of money, often targeting interest rates.