CHAPTER 6: KEYNESIAN SYSTEM (II): MONEY,INTEREST, AND INCOMEADDITIONAL QUESTIONSEssay Questions and/or Problems:1.What is meant by a “liquidity trap?”
2.What happens to inventories on all points that are below the IS curve? Are unplanned inventoriespositive or negative? Explain.
3.a. Define the LM curve. Define the IS curve.
b. Is the LM curve positively or negatively sloped? Is the IS curve positively or negatively sloped?
c.When is the LM curve relatively steep? When is the IS curve relatively flat?
4.List three changes in exogenous variables that would shift the IS curve to the right.
5.Keynes considered three motives for holding money. Which of these was similar to the classicalquantity theory of money demand? Which is unique to Keynesian theory?