Question 1

If neither investment nor consumption depends on the interest rate, then the IS curve is _____, and _____ policy has no effect on output.

Accepted Answer

A) vertical; monetary 
B) horizontal; monetary 
C) vertical; fiscal 
D) horizontal; fiscal 
A) vertical; monetary 
B) horizontal; monetary 
C) vertical; fiscal 
D) horizontal; fiscal A

Question 2

An increase in the demand for money, at any given income level and level of interest rates, will, within the IS-LM framework, _____ output and _____ interest rates.

Accepted Answer

A) increase; lower 
B) increase; raise 
C) lower; lower. 
D) lower; raise 
A) increase; lower 
B) increase; raise 
C) lower; lower. 
D) lower; raise D

Question 3

Other things equal, an expected deflation can change demand by:

Accepted Answer

A) lowering the demand for money, thus shifting the LM curve. 
B) increasing the demand for money, thus shifting the LM curve. 
C) raising the real interest rate for any given nominal interest rate, thus reducing desired investment. 
D) lowering the real interest rate for any given nominal interest rate, thus increasing desired investment. 
A) lowering the demand for money, thus shifting the LM curve. 
B) increasing the demand for money, thus shifting the LM curve. 
C) raising the real interest rate for any given nominal interest rate, thus reducing desired investment. 
D) lowering the real interest rate for any given nominal interest rate, thus increasing desired investment. C

Question 4

Exhibit: IS-LM Monetary Policy   Based on the graph, starting from equilibrium at interest rate r1 and income Y1, an increase in the money supply would generate the new equilibrium combination of interest rate and income:

Accepted Answer

A) r2, Y2. 
B) r3, Y2. 
C) r2, Y3. 
D) r3, Y3. 
A) r2, Y2. 
B) r3, Y2. 
C) r2, Y3. 
D) r3, Y3.

Question 5

The LM curve can shift to the right if there is an increase in the supply of money or a fall in the price level. In which case is this movement along the aggregate demand curve, and in which case is this a shift of the aggregate demand curve? Explain.

Accepted Answer

The aggregate demand curve shows the rel

Question 6

Compare the impact of a tax cut on consumption, investment, output, and interest rates in the classical model of Chapter 3 versus the IS-LM model.

Accepted Answer

Output increases in the IS-LM model, but

Question 7

The LM curve is steeper the _____ the interest sensitivity of money demand and the _____ the effect of income on money demand.

Accepted Answer

A) greater; greater 
B) greater; smaller 
C) smaller; smaller 
D) smaller; greater 
A) greater; greater 
B) greater; smaller 
C) smaller; smaller 
D) smaller; greater

Question 8

Exhibit: Policy Interaction   Based on the graph, starting from equilibrium at interest rate r3, income Y2, IS1, and LM1, if there is an increase in government spending that shifts the IS curve to IS2 and the Bank of Canada does not change the money supply, the new equilibrium combination of interest and income will be _____.

Accepted Answer

A) r1, Y2 
B) r2, Y3 
C) r3, Y3 
D) r3, Y4 
A) r1, Y2 
B) r2, Y3 
C) r3, Y3 
D) r3, Y4

Question 9

An increase in money supply shifts the LM curve to the right, but an increase in money demand shifts the LM curve to the left. Explain why there is a difference.

Accepted Answer

When the money supply increases (for a f

Question 10

The debt-deflation hypothesis explains the fall in income as a consequence of unexpected deflation transferring wealth _____, and that creditors have a _____ propensity to consume than debtors.

Accepted Answer

A) from debtors to creditors; smaller 
B) from debtors to creditors; larger 
C) from creditors to debtors; smaller 
D) from creditors to debtors; larger 
A) from debtors to creditors; smaller 
B) from debtors to creditors; larger 
C) from creditors to debtors; smaller 
D) from creditors to debtors; larger

Question 11

Exhibit: IS-LM to Aggregate Demand   Based on the graph, which is the correct ordering of the price levels and money supplies?

Accepted Answer

A) P1 > P2 and M1 > M2 
B) P1 > P2 and M1 2 
C) P1 2 and M1 > M2 
D) P1 2 and M1 2 
A) P1 > P2 and M1 > M2 
B) P1 > P2 and M1 2 
C) P1 2 and M1 > M2 
D) P1 2 and M1 2

Question 12

Analysis of the short run and long run indicates that the _____ assumptions are most appropriate in _____.

Accepted Answer

A) classical; both the short run and the long run 
B) Keynesian; both the short run and the long run 
C) classical; the short run, whereas the Keynesian assumptions are most appropriate in the long run 
D) Keynesian; the short run, whereas the classical assumptions are most appropriate in the long run 
A) classical; both the short run and the long run 
B) Keynesian; both the short run and the long run 
C) classical; the short run, whereas the Keynesian assumptions are most appropriate in the long run 
D) Keynesian; the short run, whereas the classical assumptions are most appropriate in the long run

Question 13

Use the IS-LM model to illustrate graphically the impact of the Pigou effect on the equilibrium level of income and interest rate during the Great Depression, when prices were falling.

Accepted Answer

​ @#IMG-DLM& Income increases because the falling

Question 14

During the financial crisis of 2008-2009, many financial institutions in Canada reduced the amount of loans, even to creditworthy customers, which could be represented in the IS-LM model as a(n):

Accepted Answer

A) expansionary shift in the IS curve. 
B) contractionary shift in the IS curve. 
C) expansionary shift in the LM curve. 
D) contractionary shift in the LM curve. 
A) expansionary shift in the IS curve. 
B) contractionary shift in the IS curve. 
C) expansionary shift in the LM curve. 
D) contractionary shift in the LM curve.

Question 15

Other things equal, a given change in government spending has a larger effect on demand the:

Accepted Answer

A) flatter the IS curve. 
B) steeper the IS curve. 
C) larger the interest sensitivity of expenditure demand. 
D) smaller the interest sensitivity of money demand. 
A) flatter the IS curve. 
B) steeper the IS curve. 
C) larger the interest sensitivity of expenditure demand. 
D) smaller the interest sensitivity of money demand.

Question 16

In the IS-LM analysis, the increase in income resulting from a tax cut is _____ the increase in income resulting from an equal rise in government spending.

Accepted Answer

A) usually less than 
B) usually greater than 
C) usually equal to 
D) sometimes less and sometimes greater than 
A) usually less than 
B) usually greater than 
C) usually equal to 
D) sometimes less and sometimes greater than

Question 17

In the IS-LM model, changes in taxes initially affect planned expenditures through:

Accepted Answer

A) consumption. 
B) investment. 
C) government spending. 
D) the interest rate. 
A) consumption. 
B) investment. 
C) government spending. 
D) the interest rate.

Question 18

A change in income in the IS-LM model resulting from a change in the price level is represented by a _____ aggregate demand curve, while a change in income in the IS-LM model for a given price level is represented by a _____ aggregate demand curve.

Accepted Answer

A) movement along the; shift in the 
B) shift in the; movement along the 
C) vertical; horizontal 
D) horizontal; vertical 
A) movement along the; shift in the 
B) shift in the; movement along the 
C) vertical; horizontal 
D) horizontal; vertical

Question 19

If the LM curve is vertical and government spending rises by G, in the IS-LM analysis, then equilibrium income rises by:

Accepted Answer

A) G / (1 - MP
C) . 
B) more than zero but less than G / (1 - MP
C) . 
C) G. 
D) zero. 
A) G / (1 - MP
C) . 
B) more than zero but less than G / (1 - MP
C) . 
C) G. 
D) zero.

Question 20

Exhibit: Short Run to Long Run   Based on the graph, if the economy starts from a short-term equilibrium at D, then the long-run equilibrium will be at _____, with a _____ price level.

Accepted Answer

A) B; higher 
B) B; lower 
C) C; higher 
D) C; lower 
A) B; higher 
B) B; lower 
C) C; higher 
D) C; lower

If neither investment nor consumption depends on the interest rate, then the IS curve is _, and _ policy has no effect on output.

An increase in the demand for money, at any given income level and level of interest rates, will, within the IS-LM framework, _ output and _ interest rates.

Other things equal, an expected deflation can change demand by:

Exhibit: IS-LM Monetary Policy Based on the graph, starting from equilibrium at interest rate r₁ and income Y₁, an increase in the money supply would generate the new equilibrium combination of interest rate and income:

The LM curve can shift to the right if there is an increase in the supply of money or a fall in the price level. In which case is this movement along the aggregate demand curve, and in which case is this a shift of the aggregate demand curve? Explain.

Compare the impact of a tax cut on consumption, investment, output, and interest rates in the classical model of Chapter 3 versus the IS-LM model.

The LM curve is steeper the _ the interest sensitivity of money demand and the _ the effect of income on money demand.

An increase in money supply shifts the LM curve to the right, but an increase in money demand shifts the LM curve to the left. Explain why there is a difference.

The debt-deflation hypothesis explains the fall in income as a consequence of unexpected deflation transferring wealth _, and that creditors have a _ propensity to consume than debtors.

Exhibit: IS-LM to Aggregate Demand Based on the graph, which is the correct ordering of the price levels and money supplies?

Analysis of the short run and long run indicates that the _ assumptions are most appropriate in _.

Use the IS-LM model to illustrate graphically the impact of the Pigou effect on the equilibrium level of income and interest rate during the Great Depression, when prices were falling.

During the financial crisis of 2008-2009, many financial institutions in Canada reduced the amount of loans, even to creditworthy customers, which could be represented in the IS-LM model as a(n):

Other things equal, a given change in government spending has a larger effect on demand the:

In the IS-LM analysis, the increase in income resulting from a tax cut is _____ the increase in income resulting from an equal rise in government spending.

In the IS-LM model, changes in taxes initially affect planned expenditures through:

A change in income in the IS-LM model resulting from a change in the price level is represented by a _ aggregate demand curve, while a change in income in the IS-LM model for a given price level is represented by a _ aggregate demand curve.

If the LM curve is vertical and government spending rises by G, in the IS-LM analysis, then equilibrium income rises by:

Exhibit: Short Run to Long Run Based on the graph, if the economy starts from a short-term equilibrium at D, then the long-run equilibrium will be at _, with a _ price level.

The Science of Macroeconomics

The Data of Microeconomics

National Income: Where It Comes From and Where It Goes

The Monetary System: What It Is and How It Works

Inflation: Its Causes, Effects, and Social Costs

The Open Economy

Unemployment and the Labour Market

Economic Growth I: Capital Accumulation and Population Growth

Economic Growth II: Technology, Empirics, and Policy

Introduction to Economic Fluctuations

Aggregate Demand I: Building the Islm Model

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

Aggregate Supply and the Short-Run Tradeoff Between Inflation and Unemployment

A Dynamic Model of Economic Fluctuations

Alternative Perspectives on Stabilization Policy

Government Debt and Budget Deficits

The Financial System: Opportunities and Dangers

The Microfoundations of Consumption and Investment

Filters

Exam 12: Aggregate Demand Ii: Applying the Islm Model

If neither investment nor consumption depends on the interest rate, then the IS curve is _____, and _____ policy has no effect on output.

An increase in the demand for money, at any given income level and level of interest rates, will, within the IS-LM framework, _____ output and _____ interest rates.

Other things equal, an expected deflation can change demand by:

Exhibit: IS-LM Monetary Policy Based on the graph, starting from equilibrium at interest rate r1 and income Y1, an increase in the money supply would generate the new equilibrium combination of interest rate and income:

The LM curve can shift to the right if there is an increase in the supply of money or a fall in the price level. In which case is this movement along the aggregate demand curve, and in which case is this a shift of the aggregate demand curve? Explain.

Compare the impact of a tax cut on consumption, investment, output, and interest rates in the classical model of Chapter 3 versus the IS-LM model.

The LM curve is steeper the _____ the interest sensitivity of money demand and the _____ the effect of income on money demand.

An increase in money supply shifts the LM curve to the right, but an increase in money demand shifts the LM curve to the left. Explain why there is a difference.

The debt-deflation hypothesis explains the fall in income as a consequence of unexpected deflation transferring wealth _____, and that creditors have a _____ propensity to consume than debtors.

Exhibit: IS-LM to Aggregate Demand Based on the graph, which is the correct ordering of the price levels and money supplies?

Analysis of the short run and long run indicates that the _____ assumptions are most appropriate in _____.

Use the IS-LM model to illustrate graphically the impact of the Pigou effect on the equilibrium level of income and interest rate during the Great Depression, when prices were falling.

During the financial crisis of 2008-2009, many financial institutions in Canada reduced the amount of loans, even to creditworthy customers, which could be represented in the IS-LM model as a(n):

Other things equal, a given change in government spending has a larger effect on demand the:

In the IS-LM analysis, the increase in income resulting from a tax cut is _____ the increase in income resulting from an equal rise in government spending.

In the IS-LM model, changes in taxes initially affect planned expenditures through:

A change in income in the IS-LM model resulting from a change in the price level is represented by a _____ aggregate demand curve, while a change in income in the IS-LM model for a given price level is represented by a _____ aggregate demand curve.

If the LM curve is vertical and government spending rises by G, in the IS-LM analysis, then equilibrium income rises by:

Exhibit: Short Run to Long Run Based on the graph, if the economy starts from a short-term equilibrium at D, then the long-run equilibrium will be at _____, with a _____ price level.

The Science of Macroeconomics

The Data of Microeconomics

National Income: Where It Comes From and Where It Goes

The Monetary System: What It Is and How It Works

Inflation: Its Causes, Effects, and Social Costs

The Open Economy

Unemployment and the Labour Market

Economic Growth I: Capital Accumulation and Population Growth

Economic Growth II: Technology, Empirics, and Policy

Introduction to Economic Fluctuations

Aggregate Demand I: Building the Islm Model

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

Aggregate Supply and the Short-Run Tradeoff Between Inflation and Unemployment

A Dynamic Model of Economic Fluctuations

Alternative Perspectives on Stabilization Policy

Government Debt and Budget Deficits

The Financial System: Opportunities and Dangers

The Microfoundations of Consumption and Investment

Filters

If neither investment nor consumption depends on the interest rate, then the IS curve is _, and _ policy has no effect on output.

An increase in the demand for money, at any given income level and level of interest rates, will, within the IS-LM framework, _ output and _ interest rates.

Exhibit: IS-LM Monetary Policy Based on the graph, starting from equilibrium at interest rate r₁ and income Y₁, an increase in the money supply would generate the new equilibrium combination of interest rate and income:

The LM curve is steeper the _ the interest sensitivity of money demand and the _ the effect of income on money demand.

The debt-deflation hypothesis explains the fall in income as a consequence of unexpected deflation transferring wealth _, and that creditors have a _ propensity to consume than debtors.

Analysis of the short run and long run indicates that the _ assumptions are most appropriate in _.

A change in income in the IS-LM model resulting from a change in the price level is represented by a _ aggregate demand curve, while a change in income in the IS-LM model for a given price level is represented by a _ aggregate demand curve.

Exhibit: Short Run to Long Run Based on the graph, if the economy starts from a short-term equilibrium at D, then the long-run equilibrium will be at _, with a _ price level.