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

Suppose that the Federal Reserve has decided that there is a deflationary gap of $1 trillion in the economy. Suppose further that the estimated slope of the IS curve is -$400 billion. By how many percentage points would the Fed need to decrease the real interest rate in order close the deflationary gap?

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

If the MPE is equal to .7, a one percentage point decrease in the real interest rate increases investment spending by $100 billion and exports by $20 billion, the real interest rate is equal to 5%, and government purchases increase by $200 billion, the change in the equilibrium level of real GDP would be

An increase in the domestic real interest rate

In the flexible-price model, the level of ________ determined the level of _________, and the strength of __________ demand determined the interest rate.

If the Federal Reserve wants to decrease interest rates, it can

The slope of the IS curve depends on each of the following except

In the late 1970s (1977 to 1979) the US economy

The position of the IS curve depends on

The slope of the IS curve tells us

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

Each of the following is a reason why lenders might add a risk premium to the interest rate they charge for a loan except

The premium that lenders charge for loans to companies rather than to safe government borrowers is called the

If the MPE = .6, I_r = $200 billion billion, a one percentage point change in r will change the level of aggregate demand by

Each of the following is a reason why the appropriate interest rate in the investment function is the real, risky, long-term interest rate except

In the early 1990s (1990 to 1992) the US economy

Each of the following is a reason why stock market prices are a good indicator of the determinants of the baseline level of investment spending except

If the Federal Reserve decreases interest rates,

The intercept of the IS curve depends on each of the following except

Each of the following is a difficulty associated with attempting to control planned expenditure by manipulating interest rates except