Question 1

Fiscal and monetary stimulus differ qualitatively in the effect on

Accepted Answer

A)  output. 
B)  interest rates. 
C)  the price level. 
D)  unemployment. 
A)  output. 
B)  interest rates. 
C)  the price level. 
D)  unemployment.

Question 2

When the Fed increases the money supply, what happens to investment? How is this shown on an IS-LM graph?

Accepted Answer

Investment rises as

Question 3

An increase in autonomous investment causes equilibrium output to _____ and the equilibrium interest rate to

Accepted Answer

A)  rise, rise. 
B)  rise, fall. 
C)  fall, rise. 
D)  fall, fall. 
A)  rise, rise. 
B)  rise, fall. 
C)  fall, rise. 
D)  fall, fall.

Question 4

Crowding out refers to a diminishment of the output gain from fiscal stimulus due to

Accepted Answer

A)  a lower money supply. 
B)  higher interest rates. 
C)  higher price level. 
D)  all of the above. 
A)  a lower money supply. 
B)  higher interest rates. 
C)  higher price level. 
D)  all of the above.

Question 5

If the price level falls, equilibrium output rises and the equilibrium interest rate falls.

Accepted Answer

A) True 
 B)False

Question 6

During a financial panic, the use of Bagehot's Law is equivalent to the monetary authority targeting the _____ in the face of an unstable _____ curve.

Accepted Answer

A)  interest rate, IS 
B)  interest rate, LM 
C)  money supply, IS 
D)  money supply, LM 
A)  interest rate, IS 
B)  interest rate, LM 
C)  money supply, IS 
D)  money supply, LM

Question 7

If output starts at the natural rate, in the long run, changes in fiscal policy affect the interest rate but not output in the IS-LM model.

Accepted Answer

A) True 
 B)False

Question 8

Using an IS-LM graph starting from the natural rate of output, show the impact of an increase in taxes in the short run and the long run. What does this say about the effectiveness of policy?

Accepted Answer

An increase in taxes shifts the IS curve

Question 9

Crowding out implies that an increase in government spending affects only the price level and not output.

Accepted Answer

A) True 
 B)False

Question 10

The LM curve will shift to the left if output is_____ its natural rate.

Accepted Answer

A)  above 
B)  below 
C)  equal to 
D)  cannot be determined 
A)  above 
B)  below 
C)  equal to 
D)  cannot be determined

Question 11

A monetary policymaker is better off targeting the money supply when the _____ curve is unstable.

Accepted Answer

A)  money demand 
B)  IS 
C)  LM 
D)  none of the above 
A)  money demand 
B)  IS 
C)  LM 
D)  none of the above

Question 12

Changes in monetary policy shift the LM curve, while changes in fiscal policy shift the IS curve.

Accepted Answer

A) True 
 B)False

Question 13

An increase in the price level affects the LM curve because of its impact on consumption.

Accepted Answer

A) True 
 B)False

Question 14

If output is above the natural rate, the price level falls.

Accepted Answer

A) True 
 B)False

Question 15

A financial panic would cause _____ to shift to the right.

Accepted Answer

A)  money demand 
B)  LM 
C)  AD 
D)  all of the above 
A)  money demand 
B)  LM 
C)  AD 
D)  all of the above

Question 16

Fiscal policy cannot raise output above the natural rate in the

Accepted Answer

A)  short run. 
B)  long run. 
C)  both of the above. 
D)  neither of the above. 
A)  short run. 
B)  long run. 
C)  both of the above. 
D)  neither of the above.

Question 17

Monetary neutrality states that changes in the money supply affect only nominal variables.

Accepted Answer

A) True 
 B)False

Question 18

The natural rate of output is the level of output where

Accepted Answer

A)  the price level has no tendency to change. 
B)  money supply growth is zero. 
C)  fiscal policy cannot shift the IS curve. 
D)  all of the above. 
A)  the price level has no tendency to change. 
B)  money supply growth is zero. 
C)  fiscal policy cannot shift the IS curve. 
D)  all of the above.

Question 19

If the monetary authority wants to mitigate the effects of an unstable IS curve on output, it must accept the necessity of changes in the money supply.

Accepted Answer

A) True 
 B)False

Question 20

If autonomous consumption increases and the money supply increases, it is possible that the equilibrium interest rate will rise.

Accepted Answer

A) True 
 B)False

Exam 22: Is-Lm in Action

Fiscal and monetary stimulus differ qualitatively in the effect on

When the Fed increases the money supply, what happens to investment? How is this shown on an IS-LM graph?

An increase in autonomous investment causes equilibrium output to _____ and the equilibrium interest rate to

Crowding out refers to a diminishment of the output gain from fiscal stimulus due to

If the price level falls, equilibrium output rises and the equilibrium interest rate falls.

During a financial panic, the use of Bagehot's Law is equivalent to the monetary authority targeting the _____ in the face of an unstable _____ curve.

If output starts at the natural rate, in the long run, changes in fiscal policy affect the interest rate but not output in the IS-LM model.

Using an IS-LM graph starting from the natural rate of output, show the impact of an increase in taxes in the short run and the long run. What does this say about the effectiveness of policy?

Crowding out implies that an increase in government spending affects only the price level and not output.

The LM curve will shift to the left if output is_____ its natural rate.

A monetary policymaker is better off targeting the money supply when the _____ curve is unstable.

Changes in monetary policy shift the LM curve, while changes in fiscal policy shift the IS curve.

An increase in the price level affects the LM curve because of its impact on consumption.

If output is above the natural rate, the price level falls.

A financial panic would cause _____ to shift to the right.

Fiscal policy cannot raise output above the natural rate in the

Monetary neutrality states that changes in the money supply affect only nominal variables.

The natural rate of output is the level of output where

If the monetary authority wants to mitigate the effects of an unstable IS curve on output, it must accept the necessity of changes in the money supply.

If autonomous consumption increases and the money supply increases, it is possible that the equilibrium interest rate will rise.

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 use of Bagehot's Law is equivalent to the monetary authority targeting the _ in the face of an unstable _ curve.