Question 1

Which of the following would cause a shift in the LM curve?

Accepted Answer

A)  The government decreases Medicare benefits. 
B)  The government buys commercial paper. 
C)  The city government increases the sales tax. 
D)  All of the above. 
A)  The government decreases Medicare benefits. 
B)  The government buys commercial paper. 
C)  The city government increases the sales tax. 
D)  All of the above. B

Question 2

Crowding out requires a shift in the LM curve.

Accepted Answer

A) True 
 B)False  False

Question 3

When the Fed increases the money supply, the currency depreciates, nets exports rise and IS shifts to the right.

Accepted Answer

A) True 
 B)False  False

Question 4

An increase in autonomous consumption has a greater impact on equilibrium output in the Keynesian cross model than the IS-LM model.

Accepted Answer

A) True 
 B)False

Question 5

Show a graph where an increase in the money supply and an increase in government spending lead to an increase in the equilibrium interest rate in the short run. What is required for this to happen?

Accepted Answer

The increase in government spending shif

Question 6

A decrease in the real money supply leads to an increase in the equilibrium interest rate and equilibrium level of output in the IS-LM model.

Accepted Answer

A) True 
 B)False

Question 7

During a financial panic, the monetary authority should target the _____ and _____ it.

Accepted Answer

A)  interest rate, raise 
B)  interest rate, lower 
C)  money supply, raise 
D)  money supply, lower 
A)  interest rate, raise 
B)  interest rate, lower 
C)  money supply, raise 
D)  money supply, lower

Question 8

Money neutrality implies that a change in the money supply only affects

Accepted Answer

A)  output. 
B)  the price level. 
C)  unemployment. 
D)  none of the above. 
A)  output. 
B)  the price level. 
C)  unemployment. 
D)  none of the above.

Question 9

Explain what happens on an IS-LM graph when the Fed decreases the money supply that would show money neutrality.

Accepted Answer

Starting from the natural rate of output

Question 10

Government spending and the money supply both fall. As a result, the equilibrium interest rate must

Accepted Answer

A)  rise. 
B)  fall. 
C)  stay the same. 
D)  cannot be determined. 
A)  rise. 
B)  fall. 
C)  stay the same. 
D)  cannot be determined.

Question 11

Would a steeper LM curve imply more crowding out or less? Explain with a graph (and words).

Accepted Answer

The steeper LM2 curv

Question 12

Explain why aggregate demand slopes down in terms of the IS-LM model.

Accepted Answer

An increase in the price level

Question 13

The natural rate level of output is associated with

Accepted Answer

A)  the Aggregate Demand and Supply model. 
B)  Hamilton's Law 
C)  IS-LM model. 
D)  none of the above. 
A)  the Aggregate Demand and Supply model. 
B)  Hamilton's Law 
C)  IS-LM model. 
D)  none of the above.

Question 14

When the LM curve is unstable, an interest rate target will produce greater stability in output.

Accepted Answer

A) True 
 B)False

Question 15

An increase in the real money supply shifts the LM curve to the right.

Accepted Answer

A) True 
 B)False

Question 16

If investment spending is unstable, to stabilize output the central bank should target the

Accepted Answer

A)  money supply. 
B)  interest rate. 
C)  reserve requirement 
D)  none of the above. 
A)  money supply. 
B)  interest rate. 
C)  reserve requirement 
D)  none of the above.

Question 17

The graph above shows an increase in government spending. Crowding out is apparent since the change in output from _____ is less than the change in output from

Accepted Answer

A)  A to B, A to C. 
B)  B to C, A to C. 
C)  B to C, A to B. 
D)  none of the above. 
A)  A to B, A to C. 
B)  B to C, A to C. 
C)  B to C, A to B. 
D)  none of the above.

Question 18

A change in the price level shifts

Accepted Answer

A)  IS. 
B)  LM. 
C)  AD. 
D)  all of the above. 
A)  IS. 
B)  LM. 
C)  AD. 
D)  all of the above.

Question 19

A decrease in government spending causes the _____ curve to shift to the

Accepted Answer

A)  LM, right. 
B)  LM, left. 
C)  IS, right. 
D)  IS, left. 
A)  LM, right. 
B)  LM, left. 
C)  IS, right. 
D)  IS, left.

Question 20

An increase in autonomous consumption shifts the LM curve to the right.

Accepted Answer

A) True 
 B)False

Exam 22: Is-Lm in Action

Which of the following would cause a shift in the LM curve?

Crowding out requires a shift in the LM curve.

When the Fed increases the money supply, the currency depreciates, nets exports rise and IS shifts to the right.

An increase in autonomous consumption has a greater impact on equilibrium output in the Keynesian cross model than the IS-LM model.

Show a graph where an increase in the money supply and an increase in government spending lead to an increase in the equilibrium interest rate in the short run. What is required for this to happen?

A decrease in the real money supply leads to an increase in the equilibrium interest rate and equilibrium level of output in the IS-LM model.

During a financial panic, the monetary authority should target the _____ and _____ it.

Money neutrality implies that a change in the money supply only affects

Explain what happens on an IS-LM graph when the Fed decreases the money supply that would show money neutrality.

Government spending and the money supply both fall. As a result, the equilibrium interest rate must

Would a steeper LM curve imply more crowding out or less? Explain with a graph (and words).

Explain why aggregate demand slopes down in terms of the IS-LM model.

The natural rate level of output is associated with

When the LM curve is unstable, an interest rate target will produce greater stability in output.

An increase in the real money supply shifts the LM curve to the right.

If investment spending is unstable, to stabilize output the central bank should target the

The graph above shows an increase in government spending. Crowding out is apparent since the change in output from _____ is less than the change in output from

A change in the price level shifts

A decrease in government spending causes the _____ curve to shift to the

An increase in autonomous consumption shifts the LM curve to the right.

The Financial System

Money

Interest Rates

The Economics of Interest-Rate Fluctuations

The Economics of Interest-Rate Spreads and Yield Curves

Rational Expectations, Efficient Markets, and the Valuation of Corporate Equities

Financial Structure, Transaction Costs, and Asymmetric Information

Bank Management

Innovation and Structure in Banking and Finance

The Economics of Financial Regulation

Financial Derivatives

Financial Crises: Causes and Consequences

Central Bank Form and Function

The Money Supply Process and the Money Multipliers

Monetary Policy Tools

Monetary Policy Targets and Goals

Foreign Exchange

International Monetary Regimes

Money Demand

Is-Lm

Aggregate Supply and Demand and the Growth Diamond

Monetary Policy Transmission Mechanisms

Inflation and Money

Rational Expectations Redux: Monetary Policy Implications

Filters

During a financial panic, the monetary authority should target the _ and _ it.