Question 1

If a given fiscal policy is fully accommodated by monetary policy,then

Accepted Answer

A) GDP will remain constant. 
B) the interest rate will remain constant. 
C) GDP and the interest rate will move in the same direction. 
D) GDP and the interest rate will move in the opposite direction. 
A) GDP will remain constant. 
B) the interest rate will remain constant. 
C) GDP and the interest rate will move in the same direction. 
D) GDP and the interest rate will move in the opposite direction.

Question 2

Suppose the government increases its expenditures by $100 billion and simultaneously reduces the money supply by $100 billion.We definitely know that

Accepted Answer

A) equilibrium GDP will fall. 
B) equilibrium GDP will rise. 
C) the interest rate will rise. 
D) the interest rate will fall. 
A) equilibrium GDP will fall. 
B) equilibrium GDP will rise. 
C) the interest rate will rise. 
D) the interest rate will fall.

Question 3

We can infer that the government is following a restrictive fiscal policy when

Accepted Answer

A) the actual deficit falls. 
B) the natural employment deficit falls. 
C) the actual deficit rises. 
D) the natural employment deficit rises. 
A) the actual deficit falls. 
B) the natural employment deficit falls. 
C) the actual deficit rises. 
D) the natural employment deficit rises.

Question 4

The LM curve is the set of combinations of ________ such that ________.

Accepted Answer

A) interest rates and real money balances,real income equals real money balances times (1/r) 
B) interest rates and real money balances,the money supply is equally demanded 
C) real income and real money balances,the production of output is equally demanded 
D) real income and interest rates,the production of output is equally demanded 
E) real income and interest rates,the money supply is equally demanded 
A) interest rates and real money balances,real income equals real money balances times (1/r) 
B) interest rates and real money balances,the money supply is equally demanded 
C) real income and real money balances,the production of output is equally demanded 
D) real income and interest rates,the production of output is equally demanded 
E) real income and interest rates,the money supply is equally demanded

Question 5

Figure 4-4
  
-In Figure 4-4 above,if the interest rate falls from 10% to 7.5% and this causes businesses to become more optimistic about future investment conditions,we would observe that planned investment would

Accepted Answer

A) decrease from B to C to D. 
B) increase from B to C to D. 
C) increase from B to C to F. 
D) decrease from B to C to F. 
A) decrease from B to C to D. 
B) increase from B to C to D. 
C) increase from B to C to F. 
D) decrease from B to C to F.

Question 6

Consider an initial IS-LM equilibrium with normally-sloped curves.An increase in government spending takes us to a new equilibrium with ________ income and ________ interest rate.

Accepted Answer

A) higher,a higher 
B) higher,a lower 
C) an unchanged,a higher 
D) an unchanged,a lower 
E) lower,an unchanged 
A) higher,a higher 
B) higher,a lower 
C) an unchanged,a higher 
D) an unchanged,a lower 
E) lower,an unchanged

Question 7

In deriving LM curves,holding the real money supply constant while raising real GDP causes us to

Accepted Answer

A) trace up along an LM curve. 
B) trace down along an LM curve. 
C) shift the LM curve to the right. 
D) shift the LM curve to the left. 
A) trace up along an LM curve. 
B) trace down along an LM curve. 
C) shift the LM curve to the right. 
D) shift the LM curve to the left.

Question 8

If the Fed's goal is to hold income constant,an expansionary fiscal policy must be accompanied by ________ monetary policy,and the Fed must allow the interest rate to ________ significantly.

Accepted Answer

A) an expansionary,rise 
B) an expansionary,fall 
C) a contractionary,rise 
D) a contractionary,fall 
A) an expansionary,rise 
B) an expansionary,fall 
C) a contractionary,rise 
D) a contractionary,fall

Question 9

Monetary policy loses its effectiveness in all of the following situations EXCEPT

Accepted Answer

A) when the IS curve is vertical. 
B) when the LM curve is nearly horizontal. 
C) when interest rate controlled by the Fed reaches zero. 
D) when the IS curve is horizontal. 
A) when the IS curve is vertical. 
B) when the LM curve is nearly horizontal. 
C) when interest rate controlled by the Fed reaches zero. 
D) when the IS curve is horizontal.

Question 10

Figure 4-6
  
-In Figure 4-6 above,with IS₀ shifting to IS₁,movement from points 0 to 2 requires the real money supply to ________.

Accepted Answer

A) rise by the same percentage as income 
B) fall by the same percentage as income 
C) remain constant 
D) none of the above 
A) rise by the same percentage as income 
B) fall by the same percentage as income 
C) remain constant 
D) none of the above

Question 11

In the IS-LM diagram,we are in "general equilibrium"

Accepted Answer

A) at all points. 
B) at all points on the LM curve. 
C) at all points on the IS curve. 
D) only at the intersection of the IS and LM curves. 
A) at all points. 
B) at all points on the LM curve. 
C) at all points on the IS curve. 
D) only at the intersection of the IS and LM curves.

Question 12

When (if at all)can the crowding-out effect be prevented?

Accepted Answer

A) when the Fed decreases the money supply to accommodate the expansionary fiscal policy 
B) when the real money supply is held constant 
C) when the real balance effect is working 
D) when the Fed allows the real money supply to increase sufficiently to keep the interest rate from rising 
A) when the Fed decreases the money supply to accommodate the expansionary fiscal policy 
B) when the real money supply is held constant 
C) when the real balance effect is working 
D) when the Fed allows the real money supply to increase sufficiently to keep the interest rate from rising

Question 13

Which of the following statements would be true of an economy that can be characterized as being to the left of the IS curve?

Accepted Answer

A) There is an excess demand for commodities at the existing interest rate. 
B) There will be a tendency for the level of output to decrease. 
C) There is an excess supply of commodities at the existing interest rate. 
D) There will be a tendency for interest rates to fall. 
A) There is an excess demand for commodities at the existing interest rate. 
B) There will be a tendency for the level of output to decrease. 
C) There is an excess supply of commodities at the existing interest rate. 
D) There will be a tendency for interest rates to fall.

Question 14

Which of the following statements are true?

Accepted Answer

A) The smaller the responsiveness of money demand to a change in the interest rate,the steeper the LM curve. 
B) The larger the responsiveness of money demand to a change in the interest rate,the flatter the LM curve. 
C) If money demand is not responsive to a change in the interest rate,the LM curve will be horizontal. 
D) Both A and B. 
A) The smaller the responsiveness of money demand to a change in the interest rate,the steeper the LM curve. 
B) The larger the responsiveness of money demand to a change in the interest rate,the flatter the LM curve. 
C) If money demand is not responsive to a change in the interest rate,the LM curve will be horizontal. 
D) Both A and B.

Question 15

A higher nominal money supply is equally demanded,given each level of income,at a ________ interest rate,meaning that the LM curve has shifted to the ________.

Accepted Answer

A) higher,left 
B) higher,right 
C) lower,left 
D) lower,right 
A) higher,left 
B) higher,right 
C) lower,left 
D) lower,right

Question 16

Suppose that changes in the interest rate have absolutely no effect on the demand for money.The resulting ________ LM curve causes monetary policy to have ________ effect in changing income.

Accepted Answer

A) horizontal,no 
B) horizontal,an unusually strong 
C) vertical,no 
D) vertical,an unusually strong 
A) horizontal,no 
B) horizontal,an unusually strong 
C) vertical,no 
D) vertical,an unusually strong

Question 17

If there is unplanned inventory decumulation there is excess

Accepted Answer

A) demand for bonds. 
B) supply of bonds. 
C) demand for commodities. 
D) supply of commodities. 
A) demand for bonds. 
B) supply of bonds. 
C) demand for commodities. 
D) supply of commodities.

Question 18

When the marginal propensity to save declines,the

Accepted Answer

A) multiplier becomes larger and the IS curve becomes flatter. 
B) marginal propensity to consume increases and there is no effect on the IS curve. 
C) multiplier becomes larger and the IS curve becomes steeper. 
D) multiplier declines and the IS curve becomes steeper. 
A) multiplier becomes larger and the IS curve becomes flatter. 
B) marginal propensity to consume increases and there is no effect on the IS curve. 
C) multiplier becomes larger and the IS curve becomes steeper. 
D) multiplier declines and the IS curve becomes steeper.

Question 19

Figure 4-3
  
-Employing Figure 4-3 above,the initial equilibrium is point D and government expenditures increase by ________ shifting the IS curve from IS₀ to IS₁ and crowding out is approximately ________.

Accepted Answer

A) 500,500 
B) 250,500 
C) 1000,1000 
D) 1000,250 
A) 500,500 
B) 250,500 
C) 1000,1000 
D) 1000,250

Question 20

In a liquidity trap,the

Accepted Answer

A) IS curve is vertical. 
B) IS curve is horizontal. 
C) LM curve is vertical. 
D) LM curve is horizontal. 
A) IS curve is vertical. 
B) IS curve is horizontal. 
C) LM curve is vertical. 
D) LM curve is horizontal.

If a given fiscal policy is fully accommodated by monetary policy,then

Suppose the government increases its expenditures by $100 billion and simultaneously reduces the money supply by $100 billion.We definitely know that

We can infer that the government is following a restrictive fiscal policy when

The LM curve is the set of combinations of such that .

Figure 4-4 -In Figure 4-4 above,if the interest rate falls from 10% to 7.5% and this causes businesses to become more optimistic about future investment conditions,we would observe that planned investment would

Consider an initial IS-LM equilibrium with normally-sloped curves.An increase in government spending takes us to a new equilibrium with income and interest rate.

In deriving LM curves,holding the real money supply constant while raising real GDP causes us to

If the Fed's goal is to hold income constant,an expansionary fiscal policy must be accompanied by monetary policy,and the Fed must allow the interest rate to significantly.

Monetary policy loses its effectiveness in all of the following situations EXCEPT

Figure 4-6 -In Figure 4-6 above,with IS₀ shifting to IS₁,movement from points 0 to 2 requires the real money supply to ________.

In the IS-LM diagram,we are in "general equilibrium"

When (if at all)can the crowding-out effect be prevented?

Which of the following statements would be true of an economy that can be characterized as being to the left of the IS curve?

Which of the following statements are true?

A higher nominal money supply is equally demanded,given each level of income,at a interest rate,meaning that the LM curve has shifted to the .

Suppose that changes in the interest rate have absolutely no effect on the demand for money.The resulting LM curve causes monetary policy to have effect in changing income.

If there is unplanned inventory decumulation there is excess

When the marginal propensity to save declines,the

Figure 4-3 -Employing Figure 4-3 above,the initial equilibrium is point D and government expenditures increase by shifting the IS curve from IS₀ to IS₁ and crowding out is approximately .

In a liquidity trap,the

What Is Macroeconomics

The Measurement of Income,prices,and Unemployment

Income and Interest Rates: the Keynesian Cross Model and the Is Curve

Financial Markets, financial Regulation, and Economic Instability

The Government Budget, the Government Debt, and the Limitations of Fiscal Policy

International Trade, exchange Rates, and Macroeconomic Policy

Aggregate Demand, aggregate Supply, and the Great Depression

Inflation: Its Causes and Cures

The Goals of Stabilization Policy: Low Inflation and Low Unemployment

The Theory of Economic Growth

The Big Questions of Economic Growth

Money,banks,and the Federal Reserve

The Goals, tools, and Rules of Monetary Policy

The Economics of Consumption Behavior

The Economics of Investment Behavior

New Classical Macro and New Keynesian Macro

Conclusion: Where We Stand

Filters

Exam 4: Strong and Weak Policy Effects in the Is-Lm Model

If a given fiscal policy is fully accommodated by monetary policy,then

Suppose the government increases its expenditures by $100 billion and simultaneously reduces the money supply by $100 billion.We definitely know that

We can infer that the government is following a restrictive fiscal policy when

The LM curve is the set of combinations of ________ such that ________.

Figure 4-4 -In Figure 4-4 above,if the interest rate falls from 10% to 7.5% and this causes businesses to become more optimistic about future investment conditions,we would observe that planned investment would

Consider an initial IS-LM equilibrium with normally-sloped curves.An increase in government spending takes us to a new equilibrium with ________ income and ________ interest rate.

In deriving LM curves,holding the real money supply constant while raising real GDP causes us to

If the Fed's goal is to hold income constant,an expansionary fiscal policy must be accompanied by ________ monetary policy,and the Fed must allow the interest rate to ________ significantly.

Monetary policy loses its effectiveness in all of the following situations EXCEPT

Figure 4-6 -In Figure 4-6 above,with IS₀ shifting to IS₁,movement from points 0 to 2 requires the real money supply to ________.

In the IS-LM diagram,we are in "general equilibrium"

When (if at all)can the crowding-out effect be prevented?

Which of the following statements would be true of an economy that can be characterized as being to the left of the IS curve?

Which of the following statements are true?

A higher nominal money supply is equally demanded,given each level of income,at a ________ interest rate,meaning that the LM curve has shifted to the ________.

Suppose that changes in the interest rate have absolutely no effect on the demand for money.The resulting ________ LM curve causes monetary policy to have ________ effect in changing income.

If there is unplanned inventory decumulation there is excess

When the marginal propensity to save declines,the

Figure 4-3 -Employing Figure 4-3 above,the initial equilibrium is point D and government expenditures increase by ________ shifting the IS curve from IS₀ to IS₁ and crowding out is approximately ________.

In a liquidity trap,the

What Is Macroeconomics

The Measurement of Income,prices,and Unemployment

Income and Interest Rates: the Keynesian Cross Model and the Is Curve

Financial Markets, financial Regulation, and Economic Instability

The Government Budget, the Government Debt, and the Limitations of Fiscal Policy

International Trade, exchange Rates, and Macroeconomic Policy

Aggregate Demand, aggregate Supply, and the Great Depression

Inflation: Its Causes and Cures

The Goals of Stabilization Policy: Low Inflation and Low Unemployment

The Theory of Economic Growth

The Big Questions of Economic Growth

Money,banks,and the Federal Reserve

The Goals, tools, and Rules of Monetary Policy

The Economics of Consumption Behavior

The Economics of Investment Behavior

New Classical Macro and New Keynesian Macro

Conclusion: Where We Stand

Filters

The LM curve is the set of combinations of such that .

Consider an initial IS-LM equilibrium with normally-sloped curves.An increase in government spending takes us to a new equilibrium with income and interest rate.

If the Fed's goal is to hold income constant,an expansionary fiscal policy must be accompanied by monetary policy,and the Fed must allow the interest rate to significantly.

A higher nominal money supply is equally demanded,given each level of income,at a interest rate,meaning that the LM curve has shifted to the .

Suppose that changes in the interest rate have absolutely no effect on the demand for money.The resulting LM curve causes monetary policy to have effect in changing income.

Figure 4-3 -Employing Figure 4-3 above,the initial equilibrium is point D and government expenditures increase by shifting the IS curve from IS₀ to IS₁ and crowding out is approximately .