Question 1

The goods market is said to be in equilibrium when

Accepted Answer

A) the economy is operating at full employment. 
B) planned expenditure is equal to actual income. 
C) consumers' spending plus household saving is equal to national income. 
D) the government's budget is neither in surplus or deficit. 
A) the economy is operating at full employment. 
B) planned expenditure is equal to actual income. 
C) consumers' spending plus household saving is equal to national income. 
D) the government's budget is neither in surplus or deficit.

Question 2

The LM curve connects points where the money market is in equilibrium and the demand for money is equal to the supply of money at different interest rates.

Accepted Answer

A) True 
 B)False

Question 3

The liquidity and money (LM) curve has

Accepted Answer

A) a positive slope showing that the money market is in equilibrium at a higher interest rate when national income is higher. 
B) a negative slope showing that the money market is in equilibrium at a lower interest rate when national income is higher. 
C) a positive slope showing that the money supply is positively related to national income. 
D) a negative slope showing that the money supply is negatively related to national income. 
A) a positive slope showing that the money market is in equilibrium at a higher interest rate when national income is higher. 
B) a negative slope showing that the money market is in equilibrium at a lower interest rate when national income is higher. 
C) a positive slope showing that the money supply is positively related to national income. 
D) a negative slope showing that the money supply is negatively related to national income.

Question 4

One of the main sources of disagreement amongst economists about macroeconomic policy is

Accepted Answer

A) a fundamental disagreement about the role of taxation. 
B) how far and how quickly macroeconomic variables adjust in response to changing economic conditions. 
C) whether the marginal propensity to consume can be calculated accurately. 
D) whether the IS-LM model has any relevance at all to a modern developed economy. 
A) a fundamental disagreement about the role of taxation. 
B) how far and how quickly macroeconomic variables adjust in response to changing economic conditions. 
C) whether the marginal propensity to consume can be calculated accurately. 
D) whether the IS-LM model has any relevance at all to a modern developed economy.

Question 5

Which of the following statements about the 45 degree line is true?

Accepted Answer

A) The 45 degree line cuts the vertical axis at the level of autonomous expenditure in the economy. 
B) The 45 degree line connects all points where interest rates and national income are equal. 
C) The slope of the 45 degree line is determined by the marginal propensity to consume. 
D) A steeper 45 degree line indicates an inflationary gap. 
E) The 45 degree line connects all points where consumption spending would equal national income. 
A) The 45 degree line cuts the vertical axis at the level of autonomous expenditure in the economy. 
B) The 45 degree line connects all points where interest rates and national income are equal. 
C) The slope of the 45 degree line is determined by the marginal propensity to consume. 
D) A steeper 45 degree line indicates an inflationary gap. 
E) The 45 degree line connects all points where consumption spending would equal national income.

Question 6

In the Keynesian cross diagram the 45 degree line

Accepted Answer

A) has no economic significance. 
B) connects all points where there is full employment in the economy. 
C) connects all points where consumption spending would be equal to national income. 
D) connects all points where spending on imports is equal to the value of export spending. 
A) has no economic significance. 
B) connects all points where there is full employment in the economy. 
C) connects all points where consumption spending would be equal to national income. 
D) connects all points where spending on imports is equal to the value of export spending.

Question 7

Refer to Figure 3 below.Which statement about the two possible IS curves in Figure 3 is true? Figure 3

Accepted Answer

A) The economy is in equilibrium where IS₁ and IS2 intersect. 
B) IS₁ represents an economy in which consumers' expenditure and investment spending are more sensitive to interest rate changes than they are in the economy represented by IS2. 
C) IS₁ represents an economy in which consumers' expenditure and investment spending are less sensitive to interest rate changes than they are in the economy represented by IS2. 
D) None of the above is true. 
A) The economy is in equilibrium where IS₁ and IS2 intersect. 
B) IS₁ represents an economy in which consumers' expenditure and investment spending are more sensitive to interest rate changes than they are in the economy represented by IS2. 
C) IS₁ represents an economy in which consumers' expenditure and investment spending are less sensitive to interest rate changes than they are in the economy represented by IS2. 
D) None of the above is true.

Question 8

If the economy was in equilibrium where an inflationary gap existed then Keynes would argue that governments should cut public spending and increase taxation to reduce the expenditure line to reduce the gap.

Accepted Answer

A) True 
 B)False

Question 9

Figure 4
  
-Refer to Figure 4 above.What could have caused the shift in the IS curve shown?

Accepted Answer

A) An increase in money supply. 
B) A decrease in money supply. 
C) A rise in tax. 
D) A reduction in tax. 
A) An increase in money supply. 
B) A decrease in money supply. 
C) A rise in tax. 
D) A reduction in tax.

Question 10

On a Keynesian cross diagram, the 45 degree line connects all points where consumption spending would be equal to national income.

Accepted Answer

A) True 
 B)False

Question 11

The government increases spending by R10 billion during a time of economic slowdown when output is less than full employment output.The marginal propensity to withdraw is 0.9.What is the value of the multiplier?

Accepted Answer

A) 0.1 
B) 0.9 
C) 1.1 
D) 10 
A) 0.1 
B) 0.9 
C) 1.1 
D) 10

Question 12

Which of the following statements about the liquidity and money (LM) curve is NOT true?

Accepted Answer

A) The LM curve will shift to the right if the monetary authorities increase the money supply, all other things being equal. 
B) The LM curve will shift to the left if the general level of prices in the economy rises, all other things being equal. 
C) The LM curve shows all combinations of interest rate and level of national income at which the money market is in equilibrium. 
D) The LM curve is unaffected by inflation. 
A) The LM curve will shift to the right if the monetary authorities increase the money supply, all other things being equal. 
B) The LM curve will shift to the left if the general level of prices in the economy rises, all other things being equal. 
C) The LM curve shows all combinations of interest rate and level of national income at which the money market is in equilibrium. 
D) The LM curve is unaffected by inflation.

Question 13

IS stands for

Accepted Answer

A) Investment and Spending. 
B) Imports and Spending. 
C) Interest and Saving. 
D) Investment and Saving. 
A) Investment and Spending. 
B) Imports and Spending. 
C) Interest and Saving. 
D) Investment and Saving.

Question 14

The IS curve measures points where the inflation rate and national income are the same.

Accepted Answer

A) True 
 B)False

Question 15

The IS curve will be flatter the more responsive consumption and investment are to changes in interest rates.

Accepted Answer

A) True 
 B)False

Question 16

What is the main difference between the IS-LM model and David Romer's IS-MP model?

Accepted Answer

Romer's model explicitly assumes that ce

Question 17

In the IS-MP model, the MP curve is upward sloping from left to right because it is assumed that

Accepted Answer

A) central banks have no control over interest rates. 
B) central banks will raise interest rates when national income rises in order to dampen inflationary pressure. 
C) central banks will increase the money supply when national income rises in order to dampen inflationary pressure. 
D) monetary policy can have no effect on national income. 
A) central banks have no control over interest rates. 
B) central banks will raise interest rates when national income rises in order to dampen inflationary pressure. 
C) central banks will increase the money supply when national income rises in order to dampen inflationary pressure. 
D) monetary policy can have no effect on national income.

Question 18

The IS-MP model differs from the IS-LM model in that it is assumed

Accepted Answer

A) central banks target inflation and set interest rates to meet such a target. 
B) the money supply is endogenous. 
C) price and wage stickiness do not exist. 
D) governments instruct central banks on the level of the money supply and interest rates. 
A) central banks target inflation and set interest rates to meet such a target. 
B) the money supply is endogenous. 
C) price and wage stickiness do not exist. 
D) governments instruct central banks on the level of the money supply and interest rates.

Question 19

What was the relevance of Keynes reference to the statement that in the long run we are all dead?

Accepted Answer

Keynes had long been a critic of classic

Question 20

Explain how the aggregate demand curve is derived from the IS-LM model.

Accepted Answer

The aggregate demand curve plots the rel

The goods market is said to be in equilibrium when

The LM curve connects points where the money market is in equilibrium and the demand for money is equal to the supply of money at different interest rates.

The liquidity and money (LM) curve has

One of the main sources of disagreement amongst economists about macroeconomic policy is

Which of the following statements about the 45 degree line is true?

In the Keynesian cross diagram the 45 degree line

Refer to Figure 3 below.Which statement about the two possible IS curves in Figure 3 is true? Figure 3

If the economy was in equilibrium where an inflationary gap existed then Keynes would argue that governments should cut public spending and increase taxation to reduce the expenditure line to reduce the gap.

Figure 4 -Refer to Figure 4 above.What could have caused the shift in the IS curve shown?

On a Keynesian cross diagram, the 45 degree line connects all points where consumption spending would be equal to national income.

The government increases spending by R10 billion during a time of economic slowdown when output is less than full employment output.The marginal propensity to withdraw is 0.9.What is the value of the multiplier?

Which of the following statements about the liquidity and money (LM) curve is NOT true?

IS stands for

The IS curve measures points where the inflation rate and national income are the same.

The IS curve will be flatter the more responsive consumption and investment are to changes in interest rates.

What is the main difference between the IS-LM model and David Romer's IS-MP model?

In the IS-MP model, the MP curve is upward sloping from left to right because it is assumed that

The IS-MP model differs from the IS-LM model in that it is assumed

What was the relevance of Keynes reference to the statement that in the long run we are all dead?

Explain how the aggregate demand curve is derived from the IS-LM model.

What Is Economics

Thinking Like an Economist

Measuring a Nations Well-Being

Measuring the Cost of Living

Production and Growth

Unemployment

Saving, Investment and the Financial System

The Basic Tools of Finance

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Business Cycles

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short Run Trade-Off Between Inflation and Unemployment

Supply Side Policies

The Financial Crisis and Sovereign Debt

Common Currency Areas and European Monetary Union

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Exam 14: Keynesian Economics and the Is-Lm Analysis

The goods market is said to be in equilibrium when

The LM curve connects points where the money market is in equilibrium and the demand for money is equal to the supply of money at different interest rates.

The liquidity and money (LM) curve has

One of the main sources of disagreement amongst economists about macroeconomic policy is

Which of the following statements about the 45 degree line is true?

In the Keynesian cross diagram the 45 degree line

Refer to Figure 3 below.Which statement about the two possible IS curves in Figure 3 is true? Figure 3

If the economy was in equilibrium where an inflationary gap existed then Keynes would argue that governments should cut public spending and increase taxation to reduce the expenditure line to reduce the gap.

Figure 4 -Refer to Figure 4 above.What could have caused the shift in the IS curve shown?

On a Keynesian cross diagram, the 45 degree line connects all points where consumption spending would be equal to national income.

The government increases spending by R10 billion during a time of economic slowdown when output is less than full employment output.The marginal propensity to withdraw is 0.9.What is the value of the multiplier?

Which of the following statements about the liquidity and money (LM) curve is NOT true?

IS stands for

The IS curve measures points where the inflation rate and national income are the same.

The IS curve will be flatter the more responsive consumption and investment are to changes in interest rates.

What is the main difference between the IS-LM model and David Romer's IS-MP model?

In the IS-MP model, the MP curve is upward sloping from left to right because it is assumed that

The IS-MP model differs from the IS-LM model in that it is assumed

What was the relevance of Keynes reference to the statement that in the long run we are all dead?

Explain how the aggregate demand curve is derived from the IS-LM model.

What Is Economics

Thinking Like an Economist

Measuring a Nations Well-Being

Measuring the Cost of Living

Production and Growth

Unemployment

Saving, Investment and the Financial System

The Basic Tools of Finance

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Business Cycles

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short Run Trade-Off Between Inflation and Unemployment

Supply Side Policies

The Financial Crisis and Sovereign Debt

Common Currency Areas and European Monetary Union

Filters