Question 1

According to the analysis underlying the Keynesian cross, when planned expenditure exceeds income:

Accepted Answer

A) income falls. 
B) planned expenditure falls. 
C) unplanned inventory investment is negative. 
D) prices rise. 
A) income falls. 
B) planned expenditure falls. 
C) unplanned inventory investment is negative. 
D) prices rise.

Question 2

In the liquidity preference model, what adjusts to move the money market to equilibrium following a change in the money supply?

Accepted Answer

A) planned spending. 
B) the interest rate. 
C) production. 
D) the price level. 
A) planned spending. 
B) the interest rate. 
C) production. 
D) the price level.

Question 3

The Keynesian cross shows:

Accepted Answer

A) determination of equilibrium income and the interest rate in the short run. 
B) determination of equilibrium income and the interest rate in the long run. 
C) equality of planned expenditure and income in the short run. 
D) equality of planned expenditure and income in the long run. 
A) determination of equilibrium income and the interest rate in the short run. 
B) determination of equilibrium income and the interest rate in the long run. 
C) equality of planned expenditure and income in the short run. 
D) equality of planned expenditure and income in the long run.

Question 4

For any given interest rate and price level, an increase in the money supply:

Accepted Answer

A) lowers income. 
B) raises income. 
C) has no effect on income. 
D) lowers velocity. 
A) lowers income. 
B) raises income. 
C) has no effect on income. 
D) lowers velocity.

Question 5

With the real money supply held constant, the theory of liquidity preference implies that a higher income level will be consistent with:

Accepted Answer

A) no change in the interest rate. 
B) a lower interest rate. 
C) a higher interest rate. 
D) first a lower and then a higher interest rate. 
A) no change in the interest rate. 
B) a lower interest rate. 
C) a higher interest rate. 
D) first a lower and then a higher interest rate.

Question 6

Assume that the equilibrium in the money market may be described as M/P = 0.5Y - 100r, and M/P equals 800.
a. Write the LM curve two ways, expressing Y as a function of r and r as a function of Y. (Hint: Write the LM curve only relating Y and r; substitute out M/P.)
b. What is the slope of the LM curve?
c. If r is 1 percent, what is Y along the LM curve? If r is 3 percent, what is Y along the LM
curve? If r is 5 percent, what is Y along the LM curve?
d. If M/P increases, does the LM curve shift upward and to the left or downward and to the right?
e. If M increases and P is constant, does the LM curve shift upward and to the left or
downward and to the right?
f. If P increases and M is constant, does the LM curve shift upward and to the left or downward and to the right?

Accepted Answer

a. Y = 1,600 + 200r, or r = -8 + 0.005Y.

Question 7

According to the Keynesian-cross analysis, when there is a shift upward in the government- purchases schedule by an amount ∆G and the planned expenditure schedule by an equal amount, then equilibrium income rises by:

Accepted Answer

A) one unit. 
B) ∆G. 
C) ∆G divided by the quantity one minus the marginal propensity to consume. 
D) ∆G multiplied by the quantity one plus the marginal propensity to consume. 
A) one unit. 
B) ∆G. 
C) ∆G divided by the quantity one minus the marginal propensity to consume. 
D) ∆G multiplied by the quantity one plus the marginal propensity to consume.

Question 8

During a recession, consumers may want to save more to provide themselves with a reserve to cushion possible job losses. Use the Keynesian model to describe the impact of an exogenous decrease in consumption (a decrease in C) on the equilibrium level of income in the economy. Will aggregate national saving increase?

Accepted Answer

A decrease in exogenous consumption redu

Question 9

Consider a closed economy to which the Keynesian-cross analysis applies. Consumption is given by the equation C = 200 + 2/3(Y - T). Planned investment is 300, as are government spending and taxes.
a. If Y is 1,500, what is planned spending? What is inventory accumulation or decumulation?
Should equilibrium Y be higher or lower than 1,500?
b. What is equilibrium Y? (Hint: Substitute the values of equations for planned consumption, investment, and government spending into the equation Y = C + I + G and then solve for Y.) c. What are equilibrium consumption, private saving, public saving, and national saving?
d. How much does equilibrium income decrease when G is reduced to 200? What is the
multiplier for government spending?

Accepted Answer

a. Planned spending is 1,600. Inventory

Question 10

Along an IS curve all of the following are always true except:

Accepted Answer

A) planned expenditures equal actual expenditures. 
B) planned expenditures equal income. 
C) the demand for real balances equals the supply of real balances. 
D) there are no unplanned changes in inventories. 
A) planned expenditures equal actual expenditures. 
B) planned expenditures equal income. 
C) the demand for real balances equals the supply of real balances. 
D) there are no unplanned changes in inventories.

Question 11

The variable that links the market for goods and services and the market for real money balances in the IS-LM model is the:

Accepted Answer

A) consumption function. 
B) interest rate. 
C) price level. 
D) nominal money supply. 
A) consumption function. 
B) interest rate. 
C) price level. 
D) nominal money supply.

Question 12

In the Keynesian-cross model, if government purchases increase 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 13

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

Accepted Answer

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

Question 14

If the interest rate is above the equilibrium value, the:

Accepted Answer

A) demand for real balances exceeds the supply. 
B) supply of real balances exceeds the demand. 
C) market for real balances clears. 
D) demand for real balances increases. 
A) demand for real balances exceeds the supply. 
B) supply of real balances exceeds the demand. 
C) market for real balances clears. 
D) demand for real balances increases.

Question 15

The LM curve, in the usual case:

Accepted Answer

A) is vertical. 
B) is horizontal. 
C) slopes down to the right. 
D) slopes up to the right. 
A) is vertical. 
B) is horizontal. 
C) slopes down to the right. 
D) slopes up to the right.

Question 16

The LM curve shows combinations of that are consistent with equilibrium in the market for real money balances:

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 17

The IS-LM model is generally used:

Accepted Answer

A) only in the short run. 
B) only in the long run. 
C) both in the short run and the long run. 
D) in determining the price level. 
A) only in the short run. 
B) only in the long run. 
C) both in the short run and the long run. 
D) in determining the price level.

Question 18

When Paul Volcker tightened the money supply:

Accepted Answer

A) the inflation rate immediately fell. 
B) nominal interest rates fell in the short run. 
C) nominal interest rates fell in the long run. 
D) real balances rose in the short run. 
A) the inflation rate immediately fell. 
B) nominal interest rates fell in the short run. 
C) nominal interest rates fell in the long run. 
D) real balances rose in the short run.

Question 19

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

Accepted Answer

A) is chosen by the central bank. 
B) depends on the interest rate. 
C) varies with the price level. 
D) changes as the level of income changes. 
A) is chosen by the central bank. 
B) depends on the interest rate. 
C) varies with the price level. 
D) changes as the level of income changes.

Question 20

The IS-LM model simultaneously determines equilibrium in two markets. a. Which two markets?
b. What two variables adjust to bring equilibrium in the markets?

Accepted Answer

a. The IS-LM model simultaneously determ

According to the analysis underlying the Keynesian cross, when planned expenditure exceeds income:

In the liquidity preference model, what adjusts to move the money market to equilibrium following a change in the money supply?

The Keynesian cross shows:

For any given interest rate and price level, an increase in the money supply:

With the real money supply held constant, the theory of liquidity preference implies that a higher income level will be consistent with:

According to the Keynesian-cross analysis, when there is a shift upward in the government- purchases schedule by an amount ∆G and the planned expenditure schedule by an equal amount, then equilibrium income rises by:

Along an IS curve all of the following are always true except:

The variable that links the market for goods and services and the market for real money balances in the IS-LM model is the:

In the Keynesian-cross model, if government purchases increase by 250, then the equilibrium level of income:

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

If the interest rate is above the equilibrium value, the:

The LM curve, in the usual case:

The LM curve shows combinations of that are consistent with equilibrium in the market for real money balances:

The IS-LM model is generally used:

When Paul Volcker tightened the money supply:

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

The IS-LM model simultaneously determines equilibrium in two markets. a. Which two markets? b. What two variables adjust to bring equilibrium in the markets?

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

According to the analysis underlying the Keynesian cross, when planned expenditure exceeds income:

In the liquidity preference model, what adjusts to move the money market to equilibrium following a change in the money supply?

The Keynesian cross shows:

For any given interest rate and price level, an increase in the money supply:

With the real money supply held constant, the theory of liquidity preference implies that a higher income level will be consistent with:

According to the Keynesian-cross analysis, when there is a shift upward in the government- purchases schedule by an amount ∆G and the planned expenditure schedule by an equal amount, then equilibrium income rises by:

Along an IS curve all of the following are always true except:

The variable that links the market for goods and services and the market for real money balances in the IS-LM model is the:

In the Keynesian-cross model, if government purchases increase by 250, then the equilibrium level of income:

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

If the interest rate is above the equilibrium value, the:

The LM curve, in the usual case:

The LM curve shows combinations of that are consistent with equilibrium in the market for real money balances:

The IS-LM model is generally used:

When Paul Volcker tightened the money supply:

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

The IS-LM model simultaneously determines equilibrium in two markets. a. Which two markets? b. What two variables adjust to bring equilibrium in the markets?

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