Exam 10: Aggregate Demand I: Building the Is-Lm Model

According to the theory of liquidity preference, holding the supply of real money balances constant, an increase in income will the demand for real money balances and will the interest rate.

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Question 1

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Explain why a decrease in planned investment, which is a change in the goods market, will upset the equilibrium in the money market.

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Question 2

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A decrease in planned investment spending decreases planned spending, which will reduce the equilibrium level of income in the goods market. A decrease in income decreases the demand for real money balances in the money market, which will decrease the equilibrium level of the interest rate in the money market. Graphically this is represented by a shift in the IS curve to the left and a movement down the
LM curve.

The IS curve shifts when all of the following economic variables change except:

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Question 3

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The IS and LM curves together generally determine:

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Question 4

The intersection of the IS and LM curves determines the values of:

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Question 5

With planned expenditure and the equilibrium condition Y = PE drawn on a graph with income along the horizontal axis, if income exceeds expenditure, then income is to the of equilibrium income and there is unplanned inventory .

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Question 6

According to classical theory, national income depends on , while Keynes proposed that determined the level of national income.

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Question 7

Compare how equilibrium is attained in the market for goods and services versus the market for real-money balances. (Hint: Explain what force moves the market back to equilibrium if the market is initially in disequilibrium.)

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Question 8

In the Keynesian-cross analysis, assume that the analysis of taxes is changed so that taxes, T, are made a function of income, as in T = T + tY, where T and t are parameters of the tax Code and t is positive but less than 1. As compared to a case where t is zero, the multiplier for government purchases in this case will:

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Question 9

In the Keynesian cross model, actual expenditures differ from planned expenditures by the amount of:

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Question 10

The tax multiplier indicates how much change(s) in response to a $1 change in taxes.

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Question 11

The theory of liquidity preference implies that:

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Question 12

After the Kennedy tax cut in 1964, real GDP:

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Question 13

An increase in government spending generally shifts the IS curve, drawn with income along the horizontal axis and the interest rate along the vertical axis:

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Question 14

In the Keynesian-cross model, what adjusts to move the economy to equilibrium following a change in exogenous planned spending?

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Question 15

An explanation for the slope of the IS curve is that as the interest rate increases, the quantity of investment , and this shifts the expenditure function , thereby decreasing income.

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Question 16

Two interpretations of the IS-LM model are that the model explains:

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Question 17

An LM curve shows combinations of:

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Question 18

The IS curve generally determines:

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Question 19

The equilibrium condition in the Keynesian-cross analysis in a closed economy is:

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Question 20

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According to the theory of liquidity preference, holding the supply of real money balances constant, an increase in income will the demand for real money balances and will the interest rate.

Explain why a decrease in planned investment, which is a change in the goods market, will upset the equilibrium in the money market.

The IS curve shifts when all of the following economic variables change except:

The IS and LM curves together generally determine:

The intersection of the IS and LM curves determines the values of:

With planned expenditure and the equilibrium condition Y = PE drawn on a graph with income along the horizontal axis, if income exceeds expenditure, then income is to the of equilibrium income and there is unplanned inventory .

According to classical theory, national income depends on , while Keynes proposed that determined the level of national income.

Compare how equilibrium is attained in the market for goods and services versus the market for real-money balances. (Hint: Explain what force moves the market back to equilibrium if the market is initially in disequilibrium.)

In the Keynesian cross model, actual expenditures differ from planned expenditures by the amount of:

The tax multiplier indicates how much change(s) in response to a $1 change in taxes.

The theory of liquidity preference implies that:

After the Kennedy tax cut in 1964, real GDP:

An increase in government spending generally shifts the IS curve, drawn with income along the horizontal axis and the interest rate along the vertical axis:

In the Keynesian-cross model, what adjusts to move the economy to equilibrium following a change in exogenous planned spending?

An explanation for the slope of the IS curve is that as the interest rate increases, the quantity of investment , and this shifts the expenditure function , thereby decreasing income.

Two interpretations of the IS-LM model are that the model explains:

An LM curve shows combinations of:

The IS curve generally determines:

The equilibrium condition in the Keynesian-cross analysis in a closed economy is:

The Science of Macroeconomics

The Data of Macroeconomics

National Income: Where It Comes From and Where It Goes

Money and Inflation

The Open Economy

Unemployment

Economic Growth I: Capital Accumulation and Population Growth

Economic Growth II: Technology, Empirics, and Policy

Introduction to Economic Fluctuations

Aggregate Demand II: Applying the Is-Lm Model

Aggregate Supply and the Short-Run Tradeoff Between Inflation and Unemployment

Stabilization Policy

Government Debt and Budget Deficits

Introduction to the Financial System

Asset Prices and Interest Rates

Securities Markets

Banking

Financial Crises

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