Question 1

An increase in autonomous investment causes the ____ and _____ curves to shift to the right.

Accepted Answer

A)  IS, LM 
B)  IS, AD 
C)  LM, AD 
D)  none of the above 
A)  IS, LM 
B)  IS, AD 
C)  LM, AD 
D)  none of the above

Question 2

Explain why aggregate demand slopes down in terms of the IS-LM model.

Accepted Answer

An increase in the price level

Question 3

If investment spending is unstable, to stabilize output the central bank should target the

Accepted Answer

A)  money supply. 
B)  interest rate. 
C)  reserve requirement 
D)  none of the above. 
A)  money supply. 
B)  interest rate. 
C)  reserve requirement 
D)  none of the above.

Question 4

Fiscal policy cannot raise output above the natural rate in the

Accepted Answer

A)  short run. 
B)  long run. 
C)  both of the above. 
D)  neither of the above. 
A)  short run. 
B)  long run. 
C)  both of the above. 
D)  neither of the above.

Question 5

A decrease in output shifts the LM curve to the right.

Accepted Answer

A) True 
 B)False

Question 6

A financial panic would cause _____ to shift to the right.

Accepted Answer

A)  money demand 
B)  LM 
C)  AD 
D)  all of the above 
A)  money demand 
B)  LM 
C)  AD 
D)  all of the above

Question 7

The graph above shows an increase in government spending. Crowding out is apparent since the change in output from _____ is less than the change in output from

Accepted Answer

A)  A to B, A to C. 
B)  B to C, A to C. 
C)  B to C, A to B. 
D)  none of the above. 
A)  A to B, A to C. 
B)  B to C, A to C. 
C)  B to C, A to B. 
D)  none of the above.

Question 8

A change in the price level shifts

Accepted Answer

A)  IS. 
B)  LM. 
C)  AD. 
D)  all of the above. 
A)  IS. 
B)  LM. 
C)  AD. 
D)  all of the above.

Question 9

Explain the difference between fiscal policy and monetary policy.

Accepted Answer

Fiscal policy refers to factor

Question 10

If the monetary authority wants to mitigate the effects of an unstable IS curve on output, it must accept the necessity of changes in the money supply.

Accepted Answer

A) True 
 B)False

Question 11

When the Fed increases the money supply, what happens to investment? How is this shown on an IS-LM graph?

Accepted Answer

Investment rises as

Question 12

Show a graph where an increase in the money supply and an increase in government spending lead to an increase in the equilibrium interest rate in the short run. What is required for this to happen?

Accepted Answer

@#IMG-DLM& The increase in government spending shi

Question 13

Government spending and the money supply both fall. As a result, the equilibrium interest rate must

Accepted Answer

A)  rise. 
B)  fall. 
C)  stay the same. 
D)  cannot be determined. 
A)  rise. 
B)  fall. 
C)  stay the same. 
D)  cannot be determined.

Question 14

An increase in the price level affects the LM curve because of its impact on consumption.

Accepted Answer

A) True 
 B)False

Question 15

If financial panics are the greatest concern for monetary policymakers, an interest rate target is superior to a money supply target.

Accepted Answer

A) True 
 B)False

Question 16

In the IS-LM model, policy is said to be ineffective in the long run because it cannot change

Accepted Answer

A)  the price level. 
B)  output. 
C)  the interest rate. 
D)  all of the above. 
A)  the price level. 
B)  output. 
C)  the interest rate. 
D)  all of the above.

Question 17

Crowding out implies that an increase in government spending affects only the price level and not output.

Accepted Answer

A) True 
 B)False

Question 18

Using an IS-LM graph starting from the natural rate of output, show the impact of an increase in taxes in the short run and the long run. What does this say about the effectiveness of policy?

Accepted Answer

@#IMG-DLM& An increase in taxes shifts the IS curv

Question 19

Equilibrium output will rise and the equilibrium interest rate will fall if

Accepted Answer

A)  government spending increases. 
B)  the money supply increases. 
C)  exports increase. 
D)  all of the above. 
A)  government spending increases. 
B)  the money supply increases. 
C)  exports increase. 
D)  all of the above.

Question 20

The AD curve

Accepted Answer

A)  represents IS-LM equilibrium points. 
B)  shifts opposite from the IS or LM curves. 
C)  both a and b 
D)  none of the above 
A)  represents IS-LM equilibrium points. 
B)  shifts opposite from the IS or LM curves. 
C)  both a and b 
D)  none of the above

Exam 22: Is-Lm in Action

An increase in autonomous investment causes the ____ and _____ curves to shift to the right.

Explain why aggregate demand slopes down in terms of the IS-LM model.

If investment spending is unstable, to stabilize output the central bank should target the

Fiscal policy cannot raise output above the natural rate in the

A decrease in output shifts the LM curve to the right.

A financial panic would cause _____ to shift to the right.

The graph above shows an increase in government spending. Crowding out is apparent since the change in output from _____ is less than the change in output from

A change in the price level shifts

Explain the difference between fiscal policy and monetary policy.

If the monetary authority wants to mitigate the effects of an unstable IS curve on output, it must accept the necessity of changes in the money supply.

When the Fed increases the money supply, what happens to investment? How is this shown on an IS-LM graph?

Show a graph where an increase in the money supply and an increase in government spending lead to an increase in the equilibrium interest rate in the short run. What is required for this to happen?

Government spending and the money supply both fall. As a result, the equilibrium interest rate must

An increase in the price level affects the LM curve because of its impact on consumption.

If financial panics are the greatest concern for monetary policymakers, an interest rate target is superior to a money supply target.

In the IS-LM model, policy is said to be ineffective in the long run because it cannot change

Crowding out implies that an increase in government spending affects only the price level and not output.

Using an IS-LM graph starting from the natural rate of output, show the impact of an increase in taxes in the short run and the long run. What does this say about the effectiveness of policy?

Equilibrium output will rise and the equilibrium interest rate will fall if

The AD curve

The Financial System

Money

Interest Rates

The Economics of Interest-Rate Fluctuations

The Economics of Interest-Rate Spreads and Yield Curves

Rational Expectations, Efficient Markets, and the Valuation of Corporate Equities

Financial Structure, Transaction Costs, and Asymmetric Information

Bank Management

Innovation and Structure in Banking and Finance

The Economics of Financial Regulation

Financial Derivatives

Financial Crises: Causes and Consequences

Central Bank Form and Function

The Money Supply Process and the Money Multipliers

Monetary Policy Tools

Monetary Policy Targets and Goals

Foreign Exchange

International Monetary Regimes

Money Demand

Is-Lm

Aggregate Supply and Demand and the Growth Diamond

Monetary Policy Transmission Mechanisms

Inflation and Money

Rational Expectations Redux: Monetary Policy Implications

Filters

An increase in autonomous investment causes the and _ curves to shift to the right.