Exam 30: IS-MP Analysis: Interest Rates and Output

Which of the following shows the correct effect on the IS-MP framework if there is a credit crunch the economy, meaning banks are unwilling to lend except at high interest rates?

Explain how interest rates affect each of the following components of aggregate expenditure. (a) consumption (b) investment (c) government expenditure (d) net exports

Consumption is the:

If the multiplier in the economy is 3.5 and government spending rises by $0.75 trillion, then GDP will change by about:

The lower the opportunity cost of consumption, the:

If government spending rises by $62 billion and GDP rises by $110 billion, then the multiplier in the economy is approximately:

Which of the figures shown here correctly represents the shape of the MP curve?

What is the output gap if potential GDP is $95.4 billion and actual GDP is $99.3 billion?

Higher interest rates cause the U.S. dollar to:

Define the following concepts. (a) consumption (b) planned investment (c) government expenditure

Suppose the economy is currently producing 2.75% above potential GDP. The government decreases spending by $3.2 trillion, and this causes GDP to fall by $4.9 trillion. The economy then arrives at potential GDP. Using this information, answer the following questions. (a) What is the approximate multiplier in the economy? (b) What effect will be seen on the IS-MP framework?

Suppose that there is a credible forecast that the risk-free rate will rise in the future. Draw the MP curve to show the effect on the economy.

If the risk-free rate is 1.5% and the risk premium is 2%, the MP curve is at:

You are driving to see your grandparents when you get caught in traffic caused by construction on the interstate. The construction is an example of:

Which of the following shows the correct effect on the IS-MP framework if there is a rise in home values and wealth in the economy?

The output gap is negative when:

A rise in the real interest rate causes:

What are four types of financial market risks that could increase the risk premium in an economy?

In October 2019, the Federal Reserve lowered the Federal Funds rate in the economy. Which of the following figures shows the correct effect on the MP curve?

Fill in the blanks below. (a) The more to the left you move along the same IS curve, the _____ (more positive, more negative) the output gap. (b) The more to the right you move along the same IS curve, the _____ (more positive, more negative) the output gap.