Question 1

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. B

Question 2

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. D

Question 3

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. A

Question 4

Graphically illustrate the impact of an open-market purchase by the Federal Reserve on the equilibrium interest rate using the theory of liquidity preference and the market for real money balances. 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 the equilibrium interest rate as a result of the open-market purchase.
c.

Accepted Answer

a.
 @#IMG-DLM& b. Th

Question 5

For the purposes of the Keynesian cross, planned expenditure consists of:

Accepted Answer

A) planned investment. 
B) planned government spending. 
C) planned investment and government spending. 
D) planned investment, government spending, and consumption expenditures. 
A) planned investment. 
B) planned government spending. 
C) planned investment and government spending. 
D) planned investment, government spending, and consumption expenditures.

Question 6

When drawn on a graph with Y along the horizontal axis and PE along the vertical axis, the line showing planned expenditure rises to the:

Accepted Answer

A) right with a slope less than one. 
B) right with a slope greater than one. 
C) left with a slope less than one. 
D) left with a slope greater than one. 
A) right with a slope less than one. 
B) right with a slope greater than one. 
C) left with a slope less than one. 
D) left with a slope greater than one.

Question 7

Use the Keynesian-cross model to illustrate graphically the impact of an increase in the interest rate 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 increase in the interest rate.

Accepted Answer

a.
 @#IMG-DLM& b. T

Question 8

Based on the Keynesian model, one reason to support government spending increases over tax cuts as measures to increase output is that:

Accepted Answer

A) government spending increases the MPC more than tax cuts. 
B) the government-spending multiplier is larger than the tax multiplier. 
C) government-spending increases do not lead to unplanned changes in inventories, but tax cuts do. 
D) increases in government spending increase planned spending, but tax cuts reduce planned spending. 
A) government spending increases the MPC more than tax cuts. 
B) the government-spending multiplier is larger than the tax multiplier. 
C) government-spending increases do not lead to unplanned changes in inventories, but tax cuts do. 
D) increases in government spending increase planned spending, but tax cuts reduce planned spending.

Question 9

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 10

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 11

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 12

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 13

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 14

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 red

Question 15

An increase in the interest rate:

Accepted Answer

A) reduces planned investment, because the interest rate is the cost of borrowing to finance investment projects. 
B) increases planned investment, because people who make money from interest have more money to invest. 
C) has no effect on investment. 
D) may be caused by a drop in investment demand. 
A) reduces planned investment, because the interest rate is the cost of borrowing to finance investment projects. 
B) increases planned investment, because people who make money from interest have more money to invest. 
C) has no effect on investment. 
D) may be caused by a drop in investment demand.

Question 16

Explain why an increase in the money supply, which is a change in the money market, will upset the equilibrium in the goods market.

Accepted Answer

An increase in the money supply will de

Question 17

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) $0.75 billion; more than $0.75 billion 
C) $0.75 billion; $0.75 billion 
D) $1 billion; $1 billion 
A) $1 billion; more than $1 billion 
B) $0.75 billion; more than $0.75 billion 
C) $0.75 billion; $0.75 billion 
D) $1 billion; $1 billion

Question 18

In the Keynesian-cross model, fiscal policy has a multiplied 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 
D) spending. 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 
D) spending. changes the interest rate.

Question 19

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 20

Along any given IS curve:

Accepted Answer

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

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

Planned expenditure is a function of:

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

For the purposes of the Keynesian cross, planned expenditure consists of:

When drawn on a graph with Y along the horizontal axis and PE along the vertical axis, the line showing planned expenditure rises to the:

Based on the Keynesian model, one reason to support government spending increases over tax cuts as measures to increase output is that:

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

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

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

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

An increase in the interest rate:

Explain why an increase in the money supply, which is a change in the money market, will upset the equilibrium in the goods market.

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 .

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

Along any given IS curve:

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 I: Building the Is-Lm Model

The Open Economy Revisited: the Mundell-Fleming Model and the Exchange-Rate Regime

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Exam 11: Aggregate Demand II: Applying the Is-Lm Model

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

Planned expenditure is a function of:

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

For the purposes of the Keynesian cross, planned expenditure consists of:

When drawn on a graph with Y along the horizontal axis and PE along the vertical axis, the line showing planned expenditure rises to the:

Based on the Keynesian model, one reason to support government spending increases over tax cuts as measures to increase output is that:

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

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

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

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

An increase in the interest rate:

Explain why an increase in the money supply, which is a change in the money market, will upset the equilibrium in the goods market.

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 .

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

Along any given IS curve:

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 I: Building the Is-Lm Model

The Open Economy Revisited: the Mundell-Fleming Model and the Exchange-Rate Regime

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