Question 1

The IS curve shows combinations of that are consistent with equilibrium in the market for goods and services:

Accepted Answer

A) inflation and unemployment 
B) the price level and real output 
C) the interest rate and the level of income 
D) the interest rate and real money balances 
A) inflation and unemployment 
B) the price level and real output 
C) the interest rate and the level of income 
D) the interest rate and real money balances

Question 2

At a given interest rate, an increase in the nominal money supply the level of income that is consistent with equilibrium in the market for real balances.

Accepted Answer

A) raises 
B) lowers 
C) does not change 
D) may either raise or lower 
A) raises 
B) lowers 
C) does not change 
D) may either raise or lower

Question 3

The interest rate determines in the goods market and money in the money market.

Accepted Answer

A) government spending; demand 
B) government spending; supply 
C) investment spending; demand 
D) investment spending; supply 
A) government spending; demand 
B) government spending; supply 
C) investment spending; demand 
D) investment spending; supply

Question 4

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 Fed wants to fix the interest rate at 7 percent, it should set the money supply at:

Accepted Answer

A) 2,000. 
B) 1,800. 
C) 1,600. 
D) 1,400. 
A) 2,000. 
B) 1,800. 
C) 1,600. 
D) 1,400.

Question 5

When the LM curve is drawn, the quantity that is held fixed is:

Accepted Answer

A) the nominal money supply. 
B) the real money supply. 
C) government spending. 
D) the tax rate. 
A) the nominal money supply. 
B) the real money supply. 
C) government spending. 
D) the tax rate.

Question 6

The government-purchases multiplier indicates how much change(s) in response to a $1 change in government purchases.

Accepted Answer

A) the budget deficit 
B) consumption 
C) income 
D) real balances 
A) the budget deficit 
B) consumption 
C) income 
D) real balances

Question 7

Tax cuts stimulate by improving workers' incentive and expand by raising households' disposable income.

Accepted Answer

A) velocity; demand for loanable funds 
B) demand for loanable funds; velocity 
C) aggregate demand; aggregate supply 
D) aggregate supply; aggregate demand 
A) velocity; demand for loanable funds 
B) demand for loanable funds; velocity 
C) aggregate demand; aggregate supply 
D) aggregate supply; aggregate demand

Question 8

Changes in fiscal policy shift the:

Accepted Answer

A)  LM curve. 
B) money demand curve. 
C) money supply curve. 
D) IS curve. 
A)  LM curve. 
B) money demand curve. 
C) money supply curve. 
D) IS curve.

Question 9

Assume that the consumption function is given by C = 200 + 0.5(Y - T) and the investment function is I = 1,000 - 200r, where r is measured in percent, G equals 300, and T equals
200.
a. What is the numerical formula for the IS curve? (Hint: Substitute for C, I, and G in the equation Y = C + I + G and then write an equation for Y as a function of r or r as a function of Y.) Express the equation two ways.
b. What is the slope of the IS curve? (Hint: The slope of the IS curve is the coefficient of Y
when the IS curve is written expressing r as a function of Y.)
c. If r is one percent: what is I? what is Y? If r is 3 percent: what is I? what is Y? If r is 5 percent: what is I? what is Y?
d. If G increases, does the IS curve shift upward and to the right or downward and to the left?

Accepted Answer

a. Y = 2,800 - 400r or r = 7 - 0.0025Y.

Question 10

According to the theory of liquidity preference, the supply of real money balances:

Accepted Answer

A) decreases as the interest rate increases. 
B) increases as the interest rate increases. 
C) increases as income increases. 
D) is fixed. 
A) decreases as the interest rate increases. 
B) increases as the interest rate increases. 
C) increases as income increases. 
D) is fixed.

Question 11

According to the theory of liquidity preference, if the supply of real money balances exceeds the demand for real money balances, individuals will:

Accepted Answer

A) sell interest-earning assets in order to obtain non-interest-bearing money. 
B) purchase interest-earning assets in order to reduce holdings of non-interest- bearing money. 
C) purchase more goods and services. 
D) be content with their portfolios. 
A) sell interest-earning assets in order to obtain non-interest-bearing money. 
B) purchase interest-earning assets in order to reduce holdings of non-interest- bearing money. 
C) purchase more goods and services. 
D) be content with their portfolios.

Question 12

The simple investment function shows that investment as increases.

Accepted Answer

A) decreases; the interest rate 
B) increases; the interest rate 
C) decreases; government spending 
D) increases; government spending 
A) decreases; the interest rate 
B) increases; the interest rate 
C) decreases; government spending 
D) increases; government spending

Question 13

In the Keynesian-cross model, if the MPC equals 0.75, then a $1 billion increase in government spending increases planned expenditures by and increases the equilibrium level of income by .

Accepted Answer

A) $1 billion; more than $1 billion 
B) $.75 billion; more than $.75 billion 
C) $.75 billion; $.75 billion 
D) $1 billion; $1 billion 
A) $1 billion; more than $1 billion 
B) $.75 billion; more than $.75 billion 
C) $.75 billion; $.75 billion 
D) $1 billion; $1 billion

Question 14

One argument in favor of tax cuts over spending on infrastructure to increase production is that:

Accepted Answer

A) tax cuts increase the MPC by a larger amount than spending on infrastructure. 
B) tax cuts increase planned spending, but spending on infrastructure offsets private spending. 
C) the tax multiplier is larger than the government spending multiplier. 
D) it takes longer to implement spending on infrastructure than to implement tax cuts. 
A) tax cuts increase the MPC by a larger amount than spending on infrastructure. 
B) tax cuts increase planned spending, but spending on infrastructure offsets private spending. 
C) the tax multiplier is larger than the government spending multiplier. 
D) it takes longer to implement spending on infrastructure than to implement tax cuts.

Question 15

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

Accepted Answer

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

Question 16

Gary Becker's criticism of government spending on infrastructure as part of President Obama's stimulus plan was that:

Accepted Answer

A) spending on infrastructure would not increase production in the economy. 
B) there is a conflict between where spending on infrastructure would benefit employment and where infrastructure is most needed. 
C) government spending on infrastructure is less effective in increasing production than an equal amount of private spending on infrastructure. 
D) government spending on infrastructure only increases demand, but tax cuts increase demand and supply. 
A) spending on infrastructure would not increase production in the economy. 
B) there is a conflict between where spending on infrastructure would benefit employment and where infrastructure is most needed. 
C) government spending on infrastructure is less effective in increasing production than an equal amount of private spending on infrastructure. 
D) government spending on infrastructure only increases demand, but tax cuts increase demand and supply.

Question 17

In the Keynesian-cross model, if taxes are reduced 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 18

Suppose Congress passes legislation that significantly reduces taxes. Use the Keynesian-cross model to illustrate graphically the impact of a reduction in taxes on the equilibrium level of income. Be sure to label: i. the axes; ii. the curves; iii. the initial equilibrium values; iv. the direction the curve shifts; and v. the terminal equilibrium values. b. Explain in words what happens to equilibrium income as a result of the tax cut and the time horizon appropriate for this analysis.

Accepted Answer

a. @#IMG-DLM& 
b. The equilibrium level

Question 19

Planned expenditure is a function of:

Accepted Answer

A) planned investment. 
B) planned government spending and taxes. 
C) planned investment, government spending, and taxes. 
D) national income and planned investment, government spending and taxes. 
A) planned investment. 
B) planned government spending and taxes. 
C) planned investment, government spending, and taxes. 
D) national income and planned investment, government spending and taxes.

Question 20

The theory of liquidity preference implies that the quantity of real money balances demanded is:

Accepted Answer

A) negatively related to both the interest rate and income. 
B) positively related to both the interest rate and income. 
C) positively related to the interest rate and negatively related to income. 
D) negatively related to the interest rate and positively related to income. 
A) negatively related to both the interest rate and income. 
B) positively related to both the interest rate and income. 
C) positively related to the interest rate and negatively related to income. 
D) negatively related to the interest rate and positively related to income.

The IS curve shows combinations of that are consistent with equilibrium in the market for goods and services:

At a given interest rate, an increase in the nominal money supply the level of income that is consistent with equilibrium in the market for real balances.

The interest rate determines in the goods market and money in the money market.

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 Fed wants to fix the interest rate at 7 percent, it should set the money supply at:

When the LM curve is drawn, the quantity that is held fixed is:

The government-purchases multiplier indicates how much change(s) in response to a $1 change in government purchases.

Tax cuts stimulate by improving workers' incentive and expand by raising households' disposable income.

Changes in fiscal policy shift the:

According to the theory of liquidity preference, the supply of real money balances:

According to the theory of liquidity preference, if the supply of real money balances exceeds the demand for real money balances, individuals will:

The simple investment function shows that investment as increases.

In the Keynesian-cross model, if the MPC equals 0.75, then a $1 billion increase in government spending increases planned expenditures by and increases the equilibrium level of income by .

One argument in favor of tax cuts over spending on infrastructure to increase production is that:

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

Gary Becker's criticism of government spending on infrastructure as part of President Obama's stimulus plan was that:

In the Keynesian-cross model, if taxes are reduced by 100, then planned expenditures for any given level of income.

Planned expenditure is a function of:

The theory of liquidity preference implies that the quantity of real money balances demanded 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

Filters

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

The IS curve shows combinations of that are consistent with equilibrium in the market for goods and services:

At a given interest rate, an increase in the nominal money supply the level of income that is consistent with equilibrium in the market for real balances.

The interest rate determines in the goods market and money in the money market.

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 Fed wants to fix the interest rate at 7 percent, it should set the money supply at:

When the LM curve is drawn, the quantity that is held fixed is:

The government-purchases multiplier indicates how much change(s) in response to a $1 change in government purchases.

Tax cuts stimulate by improving workers' incentive and expand by raising households' disposable income.

Changes in fiscal policy shift the:

According to the theory of liquidity preference, the supply of real money balances:

According to the theory of liquidity preference, if the supply of real money balances exceeds the demand for real money balances, individuals will:

The simple investment function shows that investment as increases.

In the Keynesian-cross model, if the MPC equals 0.75, then a $1 billion increase in government spending increases planned expenditures by and increases the equilibrium level of income by .

One argument in favor of tax cuts over spending on infrastructure to increase production is that:

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

Gary Becker's criticism of government spending on infrastructure as part of President Obama's stimulus plan was that:

In the Keynesian-cross model, if taxes are reduced by 100, then planned expenditures for any given level of income.

Planned expenditure is a function of:

The theory of liquidity preference implies that the quantity of real money balances demanded 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

Filters