Question 1

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

Accepted Answer

A) the determination of income in the short run when prices are fixed, or what shifts the aggregate demand curve. 
B) the short-run quantity theory of income, or the short-run Fisher effect. 
C) the determination of investment and saving, or what shifts the liquidity preference schedule. 
D) changes in government spending and taxes, or the determination of the supply of real money balances. 
A) the determination of income in the short run when prices are fixed, or what shifts the aggregate demand curve. 
B) the short-run quantity theory of income, or the short-run Fisher effect. 
C) the determination of investment and saving, or what shifts the liquidity preference schedule. 
D) changes in government spending and taxes, or the determination of the supply of real money balances.

Question 2

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

Question 3

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 4

The theory of liquidity preference implies that:

Accepted Answer

A) as the interest rate rises, the demand for real balances will fall. 
B) as the interest rate rises, the demand for real balances will rise. 
C) the interest rate will have no effect on the demand for real 
D) balances. as the interest rate rises, income will rise. 
A) as the interest rate rises, the demand for real balances will fall. 
B) as the interest rate rises, the demand for real balances will rise. 
C) the interest rate will have no effect on the demand for real 
D) balances. as the interest rate rises, income will rise.

Question 5

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 6

The Keynesian-cross analysis assumes 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 
D) rate. 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 
D) rate. depends on expenditure and so does the IS analysis.

Question 7

In explaining the 2003 bill to cut taxes, President Bush is quoted as saying, "When people have more money, they can spend it on goods and services."
a. In the IS-LM model, will a tax cut change the money supply in the economy? Does a change in the money supply shift the IS or the LM curve?
b. In the IS-LM model, does a tax cut shift the IS or the LM curve?
c. Based on your answers in a and b, how can you reconcile the president's statement with economics? Can you suggest how his statement could be modified to be consistent with the IS-LM model?

Accepted Answer

a. Tax cuts do not change the money sup

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

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

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

The theory of liquidity preference implies that:

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

The Keynesian-cross analysis assumes planned investment:

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

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

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

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

The theory of liquidity preference implies that:

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

The Keynesian-cross analysis assumes planned investment:

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

Filters