Question 1

When planned expenditure is drawn on a graph as a function of income, the slope of the line is:

Accepted Answer

A) between minus one and zero. 
B) between zero and one. 
C) one. 
D) greater than one. 
A) between minus one and zero. 
B) between zero and one. 
C) one. 
D) greater than one. B

Question 2

Gary Becker's criticism of government spending on infrastructure as part of U.S. President Barack 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 3

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. B

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. The equilibrium interest rate is _____ percent.

Accepted Answer

A) 2 
B) 4 
C) 6 
D) 8 
A) 2 
B) 4 
C) 6 
D) 8

Question 5

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

Question 6

In the Keynesian-cross model with a given MPC > 0, the government-expenditure multiplier _____ the tax multiplier.

Accepted Answer

A) is larger than 
B) equals 
C) is smaller than 
D) is the inverse of the 
A) is larger than 
B) equals 
C) is smaller than 
D) is the inverse of the

Question 7

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 8

According to the Keynesian-cross analysis, if the marginal propensity to consume is 0.6 and government expenditures and autonomous taxes are both increased by 100, equilibrium income will rise by:

Accepted Answer

A) 0. 
B) 100. 
C) 150. 
D) 250. 
A) 0. 
B) 100. 
C) 150. 
D) 250.

Question 9

The diagram below shows how a rise in government expenditure (G) shifts the IS curve from IS1 to IS2. What are the levels of investments in Y1 and Y2 for a fixed r?

Accepted Answer

The investment level remains the same in

Question 10

Both Keynesians and supply-siders believe a tax cut will lead to growth:

Accepted Answer

A) and both agree it works through incentive effects. 
B) but Keynesians believe it works through incentive effects whereas supply-siders believe it works through aggregate demand. 
C) but Keynesians believe it works through aggregate demand whereas supply-siders believe it works through incentive effects. 
D) and both agree it works through aggregate demand. 
A) and both agree it works through incentive effects. 
B) but Keynesians believe it works through incentive effects whereas supply-siders believe it works through aggregate demand. 
C) but Keynesians believe it works through aggregate demand whereas supply-siders believe it works through incentive effects. 
D) and both agree it works through aggregate demand.

Question 11

Using the Keynesian-cross analysis, assume that the consumption function is given by C = 200 + 0.7 (Y - T). If planned investment is 100 and T is 100, then the level of G needed to make equilibrium Y equal 1,000 is:

Accepted Answer

A) 170. 
B) 200. 
C) 250. 
D) 350. 
A) 170. 
B) 200. 
C) 250. 
D) 350.

Question 12

Assume an economy where the consumption function is defined as C = CC + cY, and the investment function is defined as I = mr, where Y is total income, and r is the interest rate. What does the slope of the IS curve depend on?

Accepted Answer

a. @#IMG-DLM& b. The

Question 13

The IS and LM curves together generally determine:

Accepted Answer

A) income only. 
B) the interest rate only. 
C) both income and the interest rate. 
D) income, the interest rate, and the price level. 
A) income only. 
B) the interest rate only. 
C) both income and the interest rate. 
D) income, the interest rate, and the price level.

Question 14

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 15

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 16

Assume that the money demand function is (M / P)d = 2,200 - 200r, where r is the interest rate in percent. If the price level is fixed at P = 2, and the Bank of Canada 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 17

The equilibrium condition in the Keynesian-cross analysis in a closed economy is:

Accepted Answer

A) income equals consumption plus investment plus government spending. 
B) planned expenditure equals consumption plus planned investment plus government spending. 
C) actual expenditure equals planned expenditure. 
D) actual saving equals actual investment. 
A) income equals consumption plus investment plus government spending. 
B) planned expenditure equals consumption plus planned investment plus government spending. 
C) actual expenditure equals planned expenditure. 
D) actual saving equals actual investment.

Question 18

The IS curve plots the relationship between the interest rate and _____ that arises in the market for _____.

Accepted Answer

A) national income; goods and services 
B) the price level; goods and services 
C) national income; money 
D) the price level; money 
A) national income; goods and services 
B) the price level; goods and services 
C) national income; money 
D) the price level; money

Question 19

Exhibit: Keynesian Cross   In this graph, if firms are producing at level Y3, then inventories will _____, inducing firms to _____ production.

Accepted Answer

A) rise; increase 
B) rise; decrease 
C) fall; increase 
D) fall; decrease 
A) rise; increase 
B) rise; decrease 
C) fall; increase 
D) fall; decrease

Question 20

According to the Keynesian-cross analysis, if MPC stands for marginal propensity to consume, then a rise in taxes of ΔT will:

Accepted Answer

A) decrease equilibrium income by ΔT. 
B) decrease equilibrium income by ΔT / (1 - MP
C) . 
C) decrease equilibrium income by ΔT (MP
C)  / (1 - MP
C) . 
D) not affect equilibrium income at all. 
A) decrease equilibrium income by ΔT. 
B) decrease equilibrium income by ΔT / (1 - MP
C) . 
C) decrease equilibrium income by ΔT (MP
C)  / (1 - MP
C) . 
D) not affect equilibrium income at all.

When planned expenditure is drawn on a graph as a function of income, the slope of the line is:

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

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

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. The equilibrium interest rate is _____ percent.

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

In the Keynesian-cross model with a given MPC > 0, the government-expenditure multiplier _____ the tax multiplier.

The LM curve, in the usual case:

According to the Keynesian-cross analysis, if the marginal propensity to consume is 0.6 and government expenditures and autonomous taxes are both increased by 100, equilibrium income will rise by:

The diagram below shows how a rise in government expenditure (G) shifts the IS curve from IS₁ to IS₂. What are the levels of investments in Y₁ and Y₂ for a fixed r?

Both Keynesians and supply-siders believe a tax cut will lead to growth:

Using the Keynesian-cross analysis, assume that the consumption function is given by C = 200 + 0.7 (Y - T). If planned investment is 100 and T is 100, then the level of G needed to make equilibrium Y equal 1,000 is:

Assume an economy where the consumption function is defined as C = CC + cY, and the investment function is defined as I = mr, where Y is total income, and r is the interest rate. What does the slope of the IS curve depend on?

The IS and LM curves together generally determine:

An increase in the interest rate:

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

Assume that the money demand function is (M / P)^d = 2,200 - 200r, where r is the interest rate in percent. If the price level is fixed at P = 2, and the Bank of Canada wants to fix the interest rate at 7 percent, it should set the money supply at:

The equilibrium condition in the Keynesian-cross analysis in a closed economy is:

The IS curve plots the relationship between the interest rate and _ that arises in the market for _.

Exhibit: Keynesian Cross In this graph, if firms are producing at level Y₃, then inventories will _, inducing firms to _ production.

According to the Keynesian-cross analysis, if MPC stands for marginal propensity to consume, then a rise in taxes of ΔT will:

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 Ii: Applying 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 11: Aggregate Demand I: Building the Islm Model

When planned expenditure is drawn on a graph as a function of income, the slope of the line is:

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

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

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. The equilibrium interest rate is _____ percent.

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

In the Keynesian-cross model with a given MPC > 0, the government-expenditure multiplier _____ the tax multiplier.

The LM curve, in the usual case:

According to the Keynesian-cross analysis, if the marginal propensity to consume is 0.6 and government expenditures and autonomous taxes are both increased by 100, equilibrium income will rise by:

The diagram below shows how a rise in government expenditure (G) shifts the IS curve from IS1 to IS2. What are the levels of investments in Y1 and Y2 for a fixed r?

Both Keynesians and supply-siders believe a tax cut will lead to growth:

Using the Keynesian-cross analysis, assume that the consumption function is given by C = 200 + 0.7 (Y - T). If planned investment is 100 and T is 100, then the level of G needed to make equilibrium Y equal 1,000 is:

Assume an economy where the consumption function is defined as C = CC + cY, and the investment function is defined as I = mr, where Y is total income, and r is the interest rate. What does the slope of the IS curve depend on?

The IS and LM curves together generally determine:

An increase in the interest rate:

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

Assume that the money demand function is (M / P)d = 2,200 - 200r, where r is the interest rate in percent. If the price level is fixed at P = 2, and the Bank of Canada wants to fix the interest rate at 7 percent, it should set the money supply at:

The equilibrium condition in the Keynesian-cross analysis in a closed economy is:

The IS curve plots the relationship between the interest rate and _____ that arises in the market for _____.

Exhibit: Keynesian Cross In this graph, if firms are producing at level Y3, then inventories will _____, inducing firms to _____ production.

According to the Keynesian-cross analysis, if MPC stands for marginal propensity to consume, then a rise in taxes of ΔT will:

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 Ii: Applying 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

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. The equilibrium interest rate is _____ percent.

The diagram below shows how a rise in government expenditure (G) shifts the IS curve from IS₁ to IS₂. What are the levels of investments in Y₁ and Y₂ for a fixed r?

Assume that the money demand function is (M / P)^d = 2,200 - 200r, where r is the interest rate in percent. If the price level is fixed at P = 2, and the Bank of Canada wants to fix the interest rate at 7 percent, it should set the money supply at:

The IS curve plots the relationship between the interest rate and _ that arises in the market for _.

Exhibit: Keynesian Cross In this graph, if firms are producing at level Y₃, then inventories will _, inducing firms to _ production.