Question 1

In the IS-LM model, which two variables are influenced by the interest rate?

Accepted Answer

A) supply of nominal money balances and demand for real balances 
B) demand for real balances and government purchases 
C) supply of nominal money balances and investment spending 
D) demand for real money balances and investment spending 
A) supply of nominal money balances and demand for real balances 
B) demand for real balances and government purchases 
C) supply of nominal money balances and investment spending 
D) demand for real money balances and investment spending

Question 2

An IS curve shows combinations of:

Accepted Answer

A) taxes and government spending. 
B) nominal money balances and price levels. 
C) interest rates and income that bring equilibrium in the market for real balances. 
D) interest rates and income that bring equilibrium in the market for goods and services. 
A) taxes and government spending. 
B) nominal money balances and price levels. 
C) interest rates and income that bring equilibrium in the market for real balances. 
D) interest rates and income that bring equilibrium in the market for goods and services.

Question 3

In the Keynesian-cross model, a decrease in the interest rate planned investment spending and the equilibrium level of income.

Accepted Answer

A) increases; increases 
B) increases; decreases 
C) decreases; decreases 
D) decreases; increases 
A) increases; increases 
B) increases; decreases 
C) decreases; decreases 
D) decreases; increases

Question 4

Compare the predicted impact of an increase in the money supply in the liquidity preference model versus the impact predicted by the quantity theory and the Fisher effect. Can you reconcile this difference?

Accepted Answer

The liquidity preference model predicts

Question 5

According to the Keynesian-cross analysis, if the marginal propensity to consume is 0.6, and government expenditures and autonomous taxes are both increased by 100, equilibrium income will rise by:

Accepted Answer

A) 0. 
B) 100. 
C) 150. 
D) 250. 
A) 0. 
B) 100. 
C) 150. 
D) 250.

Question 6

When drawn on a graph with income along the horizontal axis and the interest rate along the vertical axis, the IS curve generally:

Accepted Answer

A) is vertical. 
B) is horizontal. 
C) slopes upward and to the right. 
D) slopes downward and to the right. 
A) is vertical. 
B) is horizontal. 
C) slopes upward and to the right. 
D) slopes downward and to the right.

Question 7

Both Keynesians and supply-siders believe a tax cut will lead to growth:

Accepted Answer

A) and both agree it works through incentive effects. 
B) but Keynesians believe it works through incentive effects whereas supply-siders believe it works through aggregate demand. 
C) but Keynesians believe it works through aggregate demand whereas supply- siders believe it works through incentive effects. 
D) and both agree it works through aggregate demand. 
A) and both agree it works through incentive effects. 
B) but Keynesians believe it works through incentive effects whereas supply-siders believe it works through aggregate demand. 
C) but Keynesians believe it works through aggregate demand whereas supply- siders believe it works through incentive effects. 
D) and both agree it works through aggregate demand.

Question 8

Assume that the money demand function is (M/P)d = 2,200 - 200r, where r is the interest rate in percent. The money supply M is 2,000 and the price level P is 2. If the price level is fixed and the supply of money is raised to 2,800, then the equilibrium interest rate will:

Accepted Answer

A) drop by 4 percent. 
B) drop by 2 percent. 
C) drop by 1 percent. 
D) remain unchanged. 
A) drop by 4 percent. 
B) drop by 2 percent. 
C) drop by 1 percent. 
D) remain unchanged.

Question 9

A decrease in the price level, holding nominal money supply constant, will shift the LM curve:

Accepted Answer

A) upward and to the right. 
B) downward and to the right. 
C) downward and to the left. 
D) upward and to the left. 
A) upward and to the right. 
B) downward and to the right. 
C) downward and to the left. 
D) upward and to the left.

Question 10

A decrease in the nominal money supply, other things being equal, will shift the LM curve:

Accepted Answer

A) upward and to the right. 
B) downward and to the right. 
C) downward and to the left. 
D) upward and to the left. 
A) upward and to the right. 
B) downward and to the right. 
C) downward and to the left. 
D) upward and to the left.

Question 11

When planned expenditure is drawn on a graph as a function of income, the slope of the line is:

Accepted Answer

A) zero. 
B) between zero and one. 
C) one. 
D) greater than one. 
A) zero. 
B) between zero and one. 
C) one. 
D) greater than one.

Question 12

Changes in monetary policy shift the:

Accepted Answer

A) LM curve. 
B) planned spending curve. 
C) money demand curve. 
D) IS curve. 
A) LM curve. 
B) planned spending curve. 
C) money demand curve. 
D) IS curve.

Question 13

In the Keynesian-cross model, fiscal policy has a multiplier effect on income because fiscal policy:

Accepted Answer

A) increases the amount of money in the economy. 
B) changes income, which changes consumption, which further changes income. 
C) is government spending and, therefore, more powerful than private spending. 
D) changes the interest rate. 
A) increases the amount of money in the economy. 
B) changes income, which changes consumption, which further changes income. 
C) is government spending and, therefore, more powerful than private spending. 
D) changes the interest rate.

Question 14

Along any given IS curve:

Accepted Answer

A) tax rates are fixed, but government spending varies. 
B) government spending is fixed, but tax rates vary. 
C) both government spending and tax rates vary. 
D) both government spending and tax rates are fixed. 
A) tax rates are fixed, but government spending varies. 
B) government spending is fixed, but tax rates vary. 
C) both government spending and tax rates vary. 
D) both government spending and tax rates are fixed.

Question 15

Two identical countries, Country A and Country B, can each be described by a Keynesian-cross model. The MPC is 0.9 in each country. Country A decides to increase spending by $2 billion, while Country B decides to cut taxes by $2 billion. In which country will the new equilibrium level of income be greater?

Accepted Answer

Income in Country A will increase more.

Question 16

The Keynesian-cross analysis assumes that planned investment:

Accepted Answer

A) is fixed and so does the IS analysis. 
B) depends on the interest rate and so does the IS analysis. 
C) is fixed, whereas the IS analysis assumes it depends on the interest rate. 
D) depends on expenditure and so does the IS analysis. 
A) is fixed and so does the IS analysis. 
B) depends on the interest rate and so does the IS analysis. 
C) is fixed, whereas the IS analysis assumes it depends on the interest rate. 
D) depends on expenditure and so does the IS analysis.

Question 17

In the Keynesian-cross model, if taxes are reduced by 250, then the equilibrium level of income:

Accepted Answer

A) increases by 250. 
B) increases by more than 250. 
C) decreases by 250. 
D) increases, but by less than 250. 
A) increases by 250. 
B) increases by more than 250. 
C) decreases by 250. 
D) increases, but by less than 250.

Question 18

In the Keynesian-cross model, if government purchases increase by 100, then planned expenditures for any given level of income.

Accepted Answer

A) increase by 100 
B) increase by more than 100 
C) decrease by 100 
D) increase, but by less than 100 
A) increase by 100 
B) increase by more than 100 
C) decrease by 100 
D) increase, but by less than 100

Question 19

According to the theory of liquidity preference, tightening the money supply will nominal interest rates in the short run, and according to the Fisher effect, tightening the money supply will nominal interest rates in the long run.

Accepted Answer

A) increase; increase 
B) increase; decrease 
C) decrease; decrease 
D) decrease; increase 
A) increase; increase 
B) increase; decrease 
C) decrease; decrease 
D) decrease; increase

Question 20

In the Keynesian-cross model, the equilibrium level of income is determined by:

Accepted Answer

A) the factors of production. 
B) the money supply. 
C) planned spending. 
D) liquidity preference. 
A) the factors of production. 
B) the money supply. 
C) planned spending. 
D) liquidity preference.

In the IS-LM model, which two variables are influenced by the interest rate?

An IS curve shows combinations of:

In the Keynesian-cross model, a decrease in the interest rate planned investment spending and the equilibrium level of income.

Compare the predicted impact of an increase in the money supply in the liquidity preference model versus the impact predicted by the quantity theory and the Fisher effect. Can you reconcile this difference?

According to the Keynesian-cross analysis, if the marginal propensity to consume is 0.6, and government expenditures and autonomous taxes are both increased by 100, equilibrium income will rise by:

When drawn on a graph with income along the horizontal axis and the interest rate along the vertical axis, the IS curve generally:

Both Keynesians and supply-siders believe a tax cut will lead to growth:

Assume that the money demand function is (M/P)d = 2,200 - 200r, where r is the interest rate in percent. The money supply M is 2,000 and the price level P is 2. If the price level is fixed and the supply of money is raised to 2,800, then the equilibrium interest rate will:

A decrease in the price level, holding nominal money supply constant, will shift the LM curve:

A decrease in the nominal money supply, other things being equal, will shift the LM curve:

When planned expenditure is drawn on a graph as a function of income, the slope of the line is:

Changes in monetary policy shift the:

In the Keynesian-cross model, fiscal policy has a multiplier effect on income because fiscal policy:

Along any given IS curve:

The Keynesian-cross analysis assumes that planned investment:

In the Keynesian-cross model, if taxes are reduced by 250, then the equilibrium level of income:

In the Keynesian-cross model, if government purchases increase by 100, then planned expenditures for any given level of income.

According to the theory of liquidity preference, tightening the money supply will nominal interest rates in the short run, and according to the Fisher effect, tightening the money supply will nominal interest rates in the long run.

In the Keynesian-cross model, the equilibrium level of income is determined by:

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

In the IS-LM model, which two variables are influenced by the interest rate?

An IS curve shows combinations of:

In the Keynesian-cross model, a decrease in the interest rate planned investment spending and the equilibrium level of income.

Compare the predicted impact of an increase in the money supply in the liquidity preference model versus the impact predicted by the quantity theory and the Fisher effect. Can you reconcile this difference?

According to the Keynesian-cross analysis, if the marginal propensity to consume is 0.6, and government expenditures and autonomous taxes are both increased by 100, equilibrium income will rise by:

When drawn on a graph with income along the horizontal axis and the interest rate along the vertical axis, the IS curve generally:

Both Keynesians and supply-siders believe a tax cut will lead to growth:

Assume that the money demand function is (M/P)d = 2,200 - 200r, where r is the interest rate in percent. The money supply M is 2,000 and the price level P is 2. If the price level is fixed and the supply of money is raised to 2,800, then the equilibrium interest rate will:

A decrease in the price level, holding nominal money supply constant, will shift the LM curve:

A decrease in the nominal money supply, other things being equal, will shift the LM curve:

When planned expenditure is drawn on a graph as a function of income, the slope of the line is:

Changes in monetary policy shift the:

In the Keynesian-cross model, fiscal policy has a multiplier effect on income because fiscal policy:

Along any given IS curve:

The Keynesian-cross analysis assumes that planned investment:

In the Keynesian-cross model, if taxes are reduced by 250, then the equilibrium level of income:

In the Keynesian-cross model, if government purchases increase by 100, then planned expenditures for any given level of income.

According to the theory of liquidity preference, tightening the money supply will nominal interest rates in the short run, and according to the Fisher effect, tightening the money supply will nominal interest rates in the long run.

In the Keynesian-cross model, the equilibrium level of income is determined by:

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

Filters