Question 1

The yield curve

Accepted Answer

A)  shows the nominal interest rates on bonds of various durations. 
B)  shows the expected profitability of various investment projects. 
C)  shows the expected rates of return on various stocks. 
D)  shows the expected selling price of used assets. 
A)  shows the nominal interest rates on bonds of various durations. 
B)  shows the expected profitability of various investment projects. 
C)  shows the expected rates of return on various stocks. 
D)  shows the expected selling price of used assets.

Question 2

The slope of the IS curve depends on

Accepted Answer

A)  the value of the multiplier and the responsiveness of baseline autonomous spending to real interest rate changes. 
B)  the value of the multiplier and the responsiveness of investment spending and exports to real interest rate changes. 
C)  the inverse of the value of the multiplier and the responsiveness of baseline autonomous spending to real interest rate changes. 
D)  the inverse of the value of the multiplier and the responsiveness of investment spending and exports to real interest rate changes. 
A)  the value of the multiplier and the responsiveness of baseline autonomous spending to real interest rate changes. 
B)  the value of the multiplier and the responsiveness of investment spending and exports to real interest rate changes. 
C)  the inverse of the value of the multiplier and the responsiveness of baseline autonomous spending to real interest rate changes. 
D)  the inverse of the value of the multiplier and the responsiveness of investment spending and exports to real interest rate changes.

Question 3

If the marginal propensity to expend is equal to .6, the interest rate sensitivity of investment is equal to $100 billion, the interest rate sensitivity of the exchange rate is 10, and the exchange rate sensitivity of exports is $7 billion, a one percentage point change in the real interest rate will change the level of aggregate demand by

Accepted Answer

A)  $170 billion. 
B)  $425 billion. 
C)  -$425 billion. 
D)  -$170 billion. 
A)  $170 billion. 
B)  $425 billion. 
C)  -$425 billion. 
D)  -$170 billion.

Question 4

The level of exports is affected by the real interest rate because

Accepted Answer

A)  the level of imports depends on the real interest rate. 
B)  the level of imports depends on the real exchange rate. 
C)  the level of exports depends on the level of foreign income. 
D)  the level of exports depends on the real exchange rate. 
A)  the level of imports depends on the real interest rate. 
B)  the level of imports depends on the real exchange rate. 
C)  the level of exports depends on the level of foreign income. 
D)  the level of exports depends on the real exchange rate.

Question 5

If the economy is operating above (to the right of) the IS curve, then real GDP is _______ than planned expenditure,

Accepted Answer

A)  greater; inventories are decreasing faster than expected, and businesses will reduce production. 
B)  less; inventories are decreasing faster than expected, and businesses will increase production. 
C)  greater; inventories are increasing faster than expected, and businesses will reduce production. 
D)  less; inventories are increasing faster than expected, and businesses will increase production. 
A)  greater; inventories are decreasing faster than expected, and businesses will reduce production. 
B)  less; inventories are decreasing faster than expected, and businesses will increase production. 
C)  greater; inventories are increasing faster than expected, and businesses will reduce production. 
D)  less; inventories are increasing faster than expected, and businesses will increase production.

Question 6

In the 1960s the IS curve

Accepted Answer

A)  shifted to the right because of increased business optimism, tax reductions, and increased government spending. 
B)  shifted to the left because of increased business optimism, tax reductions, and increased government spending. 
C)  shifted to the right because of decreased business optimism, tax increases, and decreased government spending. 
D)  shifted to the right due to a decrease in interest rates. 
A)  shifted to the right because of increased business optimism, tax reductions, and increased government spending. 
B)  shifted to the left because of increased business optimism, tax reductions, and increased government spending. 
C)  shifted to the right because of decreased business optimism, tax increases, and decreased government spending. 
D)  shifted to the right due to a decrease in interest rates.

Question 7

A decrease in the baseline level of investment spending will

Accepted Answer

A)  shift the IS curve to the left. 
B)  shift the IS curve to the right. 
C)  make the IS curve more vertical. 
D)  make the IS curve less vertical. 
A)  shift the IS curve to the left. 
B)  shift the IS curve to the right. 
C)  make the IS curve more vertical. 
D)  make the IS curve less vertical.

Question 8

An increase in the baseline level of consumption spending will

Accepted Answer

A)  shift the IS curve to the left. 
B)  shift the IS curve to the right. 
C)  make the IS curve more vertical. 
D)  make the IS curve less vertical. 
A)  shift the IS curve to the left. 
B)  shift the IS curve to the right. 
C)  make the IS curve more vertical. 
D)  make the IS curve less vertical.

Question 9

Each of the following is a potential cause of slippage between short-term, nominal, safe, interest rates and long-term, real, risky, interest rates except

Accepted Answer

A)  changes in the term premium between short and long interest rates. 
B)  changes in the rate of inflation. 
C)  changes in the expected profitability of investment projects. 
D)  changes in the risk premium. 
A)  changes in the term premium between short and long interest rates. 
B)  changes in the rate of inflation. 
C)  changes in the expected profitability of investment projects. 
D)  changes in the risk premium.

Question 10

Changes in _____________ are the driving force behind the business cycle.

Accepted Answer

A)  consumption spending 
B)  the money supply 
C)  government purchases 
D)  investment spending 
A)  consumption spending 
B)  the money supply 
C)  government purchases 
D)  investment spending

Question 11

If the Federal Reserve raises interest rates,

Accepted Answer

A)  the IS curve will shift to the left and the level of planned expenditure will decrease. 
B)  the level of planned expenditure will move downward along the IS curve and thus increase. 
C)  the IS curve will shift to the right and the level of planned expenditure will increase. 
D)  the level of planned expenditure will move upward along the IS curve and thus decrease. 
A)  the IS curve will shift to the left and the level of planned expenditure will decrease. 
B)  the level of planned expenditure will move downward along the IS curve and thus increase. 
C)  the IS curve will shift to the right and the level of planned expenditure will increase. 
D)  the level of planned expenditure will move upward along the IS curve and thus decrease.

Question 12

The increase in the interest rate that the market charges on _________ loans over __________ loans is called the ____________.

Accepted Answer

A)  short-term; long-term; term premium 
B)  long-term; short term; yield premium 
C)  short-term; long-term; yield premium 
D)  long-term; short-term; term premium 
A)  short-term; long-term; term premium 
B)  long-term; short term; yield premium 
C)  short-term; long-term; yield premium 
D)  long-term; short-term; term premium

Question 13

Long-term interest rates will be ______ relative to short-term interest rates if

Accepted Answer

A)  high; people expect the Federal Reserve to decrease short-term rates in the future. 
B)  high; people expect the Federal Reserve to increase long-term rates in the future. 
C)  low; people expect the Federal Reserve to increase short-term rates in the future. 
D)  low; people expect the Federal Reserve to decrease short-term rates in the future. 
A)  high; people expect the Federal Reserve to decrease short-term rates in the future. 
B)  high; people expect the Federal Reserve to increase long-term rates in the future. 
C)  low; people expect the Federal Reserve to increase short-term rates in the future. 
D)  low; people expect the Federal Reserve to decrease short-term rates in the future.

Question 14

The questions with which Chapter 10 is concerned include each of the following except

Accepted Answer

A)  do the determinants of investment in the sticky-price model differ from those of the flexible-price model? 
B)  do the determinants of net exports in a sticky-price model differ from those of the flexible-price model? 
C)  do the determinants of potential output in the sticky-price model differ from those of the flexible-price model? 
D)  how do changes in interest rates affect the equilibrium level of real GDP and national income in the sticky-price model? 
A)  do the determinants of investment in the sticky-price model differ from those of the flexible-price model? 
B)  do the determinants of net exports in a sticky-price model differ from those of the flexible-price model? 
C)  do the determinants of potential output in the sticky-price model differ from those of the flexible-price model? 
D)  how do changes in interest rates affect the equilibrium level of real GDP and national income in the sticky-price model?

Question 15

An increase in government purchases will

Accepted Answer

A)  shift the IS curve to the left. 
B)  shift the IS curve to the right. 
C)  make the IS curve more vertical. 
D)  make the IS curve less vertical. 
A)  shift the IS curve to the left. 
B)  shift the IS curve to the right. 
C)  make the IS curve more vertical. 
D)  make the IS curve less vertical.

Question 16

A decrease in the domestic real interest rate

Accepted Answer

A)  will increase the real exchange rate and increase the level of exports. 
B)  will reduce the real exchange rate and reduce the level of exports. 
C)  will reduce the real exchange rate and increase the level of exports. 
D)  will increase the real exchange rate and reduce the level of exports. 
A)  will increase the real exchange rate and increase the level of exports. 
B)  will reduce the real exchange rate and reduce the level of exports. 
C)  will reduce the real exchange rate and increase the level of exports. 
D)  will increase the real exchange rate and reduce the level of exports.

Question 17

The interest sensitivity of exports is equal to

Accepted Answer

A)  the sensitivity of exports to changes in the exchange rate plus the sensitivity of the exchange rate to changes in the interest rate. 
B)  the sensitivity of exports to changes in the exchange rate times the sensitivity of the exchange rate to changes in the interest rate. 
C)  the sensitivity of exports to changes in the exchange rate minus the sensitivity of the exchange rate to changes in the interest rate. 
D)  the sensitivity of exports to changes in the exchange rate divided by the sensitivity of the exchange rate to changes in the interest rate. 
A)  the sensitivity of exports to changes in the exchange rate plus the sensitivity of the exchange rate to changes in the interest rate. 
B)  the sensitivity of exports to changes in the exchange rate times the sensitivity of the exchange rate to changes in the interest rate. 
C)  the sensitivity of exports to changes in the exchange rate minus the sensitivity of the exchange rate to changes in the interest rate. 
D)  the sensitivity of exports to changes in the exchange rate divided by the sensitivity of the exchange rate to changes in the interest rate.

Question 18

In the late 1980s (1985 to 1990) the US economy

Accepted Answer

A)  experienced a shifting of the IS curve to the right because of increased business optimism, tax increases, and decreased government spending. 
B)  experienced a movement down and to the right along the IS curve. 
C)  experienced a shifting of the IS curve to the right because of tax reductions, and increased government spending. 
D)  experienced a shifting of the IS curve to the right due to a decrease in interest rates. 
A)  experienced a shifting of the IS curve to the right because of increased business optimism, tax increases, and decreased government spending. 
B)  experienced a movement down and to the right along the IS curve. 
C)  experienced a shifting of the IS curve to the right because of tax reductions, and increased government spending. 
D)  experienced a shifting of the IS curve to the right due to a decrease in interest rates.

Question 19

From 1979 to 1982 the US economy

Accepted Answer

A)  experienced a shifting of the IS curve to the left due to an increase in interest rates. 
B)  experienced a movement down and to the right along the IS curve. 
C)  experienced a shifting of the IS curve to the left because of decreased business optimism, tax increases, and decreased government spending. 
D)  experienced a movement up and to the left along the IS curve. 
A)  experienced a shifting of the IS curve to the left due to an increase in interest rates. 
B)  experienced a movement down and to the right along the IS curve. 
C)  experienced a shifting of the IS curve to the left because of decreased business optimism, tax increases, and decreased government spending. 
D)  experienced a movement up and to the left along the IS curve.

Question 20

The questions with which Chapter 10 is concerned include each of the following except

Accepted Answer

A)  how do we calculate the equilibrium level of real GDP in the sticky-price model when the central bank's policy is to peg the real interest rate? 
B)  do the determinants of net exports in a sticky-price model differ from those of the flexible-price model? 
C)  how do changes in interest rates affect the equilibrium level of real GDP and national income in the sticky-price model? 
D)  how are the determinants of the money supply different in the sticky-price than in the flexible-price model? 
A)  how do we calculate the equilibrium level of real GDP in the sticky-price model when the central bank's policy is to peg the real interest rate? 
B)  do the determinants of net exports in a sticky-price model differ from those of the flexible-price model? 
C)  how do changes in interest rates affect the equilibrium level of real GDP and national income in the sticky-price model? 
D)  how are the determinants of the money supply different in the sticky-price than in the flexible-price model?

The yield curve

The slope of the IS curve depends on

The level of exports is affected by the real interest rate because

If the economy is operating above (to the right of) the IS curve, then real GDP is _______ than planned expenditure,

In the 1960s the IS curve

A decrease in the baseline level of investment spending will

An increase in the baseline level of consumption spending will

Each of the following is a potential cause of slippage between short-term, nominal, safe, interest rates and long-term, real, risky, interest rates except

Changes in _____________ are the driving force behind the business cycle.

If the Federal Reserve raises interest rates,

The increase in the interest rate that the market charges on _ loans over loans is called the ______.

Long-term interest rates will be ______ relative to short-term interest rates if

The questions with which Chapter 10 is concerned include each of the following except

An increase in government purchases will

A decrease in the domestic real interest rate

The interest sensitivity of exports is equal to

In the late 1980s (1985 to 1990) the US economy

From 1979 to 1982 the US economy

The questions with which Chapter 10 is concerned include each of the following except

Introduction to Macroeconomics

Measuring the Macroeconomy

Thinking Like an Economist

The Theory of Economic Growth

The Reality of Economic Growth: History and Prospect

Building Blocks of the Flexible-Price Model

Equilibrium in the Flexible-Price M Odel

Money, Prices, and Inflation

The Sticky-Price Income-Expenditure Framework: Consumption and the Multiplier

The Money Market and the LM Curve

The Phillips Curve, Expectations, and Monetary Policy

Stabilization Policy

Budget Balance, National Debt, and Investment

International Economic Policy

Changes in the Macroeconomy and Changes in Macroeconomic Policy

The Future of Macroeconomics

Epilogue

Filters

Exam 10: Investment, Net Exports, and Interest Rates: The Is Curve

The yield curve

The slope of the IS curve depends on

The level of exports is affected by the real interest rate because

If the economy is operating above (to the right of) the IS curve, then real GDP is _______ than planned expenditure,

In the 1960s the IS curve

A decrease in the baseline level of investment spending will

An increase in the baseline level of consumption spending will

Each of the following is a potential cause of slippage between short-term, nominal, safe, interest rates and long-term, real, risky, interest rates except

Changes in _____________ are the driving force behind the business cycle.

If the Federal Reserve raises interest rates,

The increase in the interest rate that the market charges on _________ loans over __________ loans is called the ____________.

Long-term interest rates will be ______ relative to short-term interest rates if

The questions with which Chapter 10 is concerned include each of the following except

An increase in government purchases will

A decrease in the domestic real interest rate

The interest sensitivity of exports is equal to

In the late 1980s (1985 to 1990) the US economy

From 1979 to 1982 the US economy

The questions with which Chapter 10 is concerned include each of the following except

Introduction to Macroeconomics

Measuring the Macroeconomy

Thinking Like an Economist

The Theory of Economic Growth

The Reality of Economic Growth: History and Prospect

Building Blocks of the Flexible-Price Model

Equilibrium in the Flexible-Price M Odel

Money, Prices, and Inflation

The Sticky-Price Income-Expenditure Framework: Consumption and the Multiplier

The Money Market and the LM Curve

The Phillips Curve, Expectations, and Monetary Policy

Stabilization Policy

Budget Balance, National Debt, and Investment

International Economic Policy

Changes in the Macroeconomy and Changes in Macroeconomic Policy

The Future of Macroeconomics

Epilogue

Filters

The increase in the interest rate that the market charges on _ loans over loans is called the ______.