Question 1

Figure 4-6
  
-In Figure 4-6 above,with IS₀ shifting to IS₁ against the upward-sloping LM curve,crowding-out is the result that

Accepted Answer

A) income stays at YO₃. 
B) income rises to Y₁ instead of to Y₂. 
C) income rises to Y₁ instead of staying at YO₃. 
D) income rises to Y₂ instead of to Y₁. 
A) income stays at YO₃. 
B) income rises to Y₁ instead of to Y₂. 
C) income rises to Y₁ instead of staying at YO₃. 
D) income rises to Y₂ instead of to Y₁.

Question 2

Figure 4-1
  
-Employing Figure 4-1 above,if Y increases by 3000 and the interest rate is fixed at 5% then the sensitivity of real money balances to changes in real income is

Accepted Answer

A) 0.67. 
B) 0.33. 
C) -0.67. 
D) -0.33. 
A) 0.67. 
B) 0.33. 
C) -0.67. 
D) -0.33.

Question 3

"Real money balances" refers to

Accepted Answer

A) the currency part of the total money supply. 
B) the money supply divided by the price level. 
C) the money supply times one minus the interest rate. 
D) the non-interest-earning part of the money supply. 
A) the currency part of the total money supply. 
B) the money supply divided by the price level. 
C) the money supply times one minus the interest rate. 
D) the non-interest-earning part of the money supply.

Question 4

When the demand for money depends only on real income,the resulting ________ LM curve causes fiscal policy to have a ________ effect on income.

Accepted Answer

A) vertical,very strong 
B) vertical,zero 
C) horizontal,very strong 
D) horizontal,zero 
A) vertical,very strong 
B) vertical,zero 
C) horizontal,very strong 
D) horizontal,zero

Question 5

During the recession phase of the business cycle,households become pessimistic about their future earning capacity as do banks.Nominal interest rates fall during recessions.Mortgage lending could be expected to

Accepted Answer

A) rise if the change in future earnings is thought to be greater than the change in interest payments. 
B) stay the same. 
C) fall. 
D) fall if the change in future earnings is thought to be greater than the change in interest payments. 
A) rise if the change in future earnings is thought to be greater than the change in interest payments. 
B) stay the same. 
C) fall. 
D) fall if the change in future earnings is thought to be greater than the change in interest payments.

Question 6

Figure 4-5
  
-In Figure 4-5 above,the money market is in equilibrium

Accepted Answer

A) at points B,C,and E. 
B) at points A and E. 
C) only at point E. 
D) at points E and D. 
E) at points A,B,E,and C. 
A) at points B,C,and E. 
B) at points A and E. 
C) only at point E. 
D) at points E and D. 
E) at points A,B,E,and C.

Question 7

Money is assumed to earn

Accepted Answer

A) no interest at all,being just currency in hand. 
B) in checkable deposit form a rate below "the interest rate." 
C) in checkable deposit form a rate equal to "the interest rate." 
D) in checkable deposit form a rate above "the interest rate." 
A) no interest at all,being just currency in hand. 
B) in checkable deposit form a rate below "the interest rate." 
C) in checkable deposit form a rate equal to "the interest rate." 
D) in checkable deposit form a rate above "the interest rate."

Question 8

The practice of "monetizing the debt" is traditionally feared because it is thought to cause

Accepted Answer

A) unemployment. 
B) inflation. 
C) a falling price level. 
D) a liquidity trap. 
A) unemployment. 
B) inflation. 
C) a falling price level. 
D) a liquidity trap.

Question 9

At all points below the current LM curve,

Accepted Answer

A) the supply of output exceeds output demand. 
B) the supply of output falls short of output demand. 
C) the supply of money falls short of money demand. 
D) the supply of money exceeds money demand. 
A) the supply of output exceeds output demand. 
B) the supply of output falls short of output demand. 
C) the supply of money falls short of money demand. 
D) the supply of money exceeds money demand.

Question 10

If spending is NOT responsive to changes in the interest rate,then

Accepted Answer

A) the Fed is "impotent." 
B) tax policy is "impotent." 
C) fiscal policy is "impotent." 
D) the Fed is "potent." 
A) the Fed is "impotent." 
B) tax policy is "impotent." 
C) fiscal policy is "impotent." 
D) the Fed is "potent."

Question 11

The "crowding-out" effect refers to the fact that

Accepted Answer

A) fiscal policy cannot be used to shift the IS curve. 
B) rising interest rates tend to accompany an expansionary fiscal policy. 
C) there may be a liquidity trap. 
D) All of these. 
A) fiscal policy cannot be used to shift the IS curve. 
B) rising interest rates tend to accompany an expansionary fiscal policy. 
C) there may be a liquidity trap. 
D) All of these.

Question 12

The "velocity" of money is

Accepted Answer

A) the ratio of real GDP to the real money supply. 
B) the real money supply divided by the real GDP. 
C) the money supply divided by the price level. 
D) the money supply multiplied by the price level. 
A) the ratio of real GDP to the real money supply. 
B) the real money supply divided by the real GDP. 
C) the money supply divided by the price level. 
D) the money supply multiplied by the price level.

Question 13

Monetary policy will have a large income effect provided the

Accepted Answer

A) IS curve is flat. 
B) LM curve is steep. 
C) IS curve is steep. 
D) LM curve is flat. 
A) IS curve is flat. 
B) LM curve is steep. 
C) IS curve is steep. 
D) LM curve is flat.

Question 14

The Chapter 3 multiplier,because it assumes an ________ interest rate,is usually an ________ of the fiscal policy multiplier in the IS-LM model.

Accepted Answer

A) endogenous,underestimate 
B) endogenous,overestimate 
C) exogenous,underestimate 
D) exogenous,overestimate 
A) endogenous,underestimate 
B) endogenous,overestimate 
C) exogenous,underestimate 
D) exogenous,overestimate

Question 15

The fiscal-policy multiplier will be greater

Accepted Answer

A) the greater is the interest responsiveness of the demand for money. 
B) the smaller is the interest responsiveness of autonomous expenditures. 
C) the smaller is the income responsiveness of the demand for money. 
D) All of the above tend to make the fiscal-policy multiplier greater. 
A) the greater is the interest responsiveness of the demand for money. 
B) the smaller is the interest responsiveness of autonomous expenditures. 
C) the smaller is the income responsiveness of the demand for money. 
D) All of the above tend to make the fiscal-policy multiplier greater.

Question 16

An increase in transfer payments would have the same short run effect on the government deficit as an equal

Accepted Answer

A) increase in government expenditures. 
B) reduction in taxes. 
C) increase in taxes. 
D) Both A and B. 
A) increase in government expenditures. 
B) reduction in taxes. 
C) increase in taxes. 
D) Both A and B.

Question 17

Suppose that Y = 4,000 and we are at a point on the money demand schedule where (M/P)= 600.Should Y rise to 4,200,the same quantity of real money balances

Accepted Answer

A) will not be demanded under any conditions. 
B) will be demanded again provided the interest rate does not change. 
C) will be demanded again provided the interest rate rises by a certain amount. 
D) will be demanded again provided the interest rate falls by a certain amount. 
A) will not be demanded under any conditions. 
B) will be demanded again provided the interest rate does not change. 
C) will be demanded again provided the interest rate rises by a certain amount. 
D) will be demanded again provided the interest rate falls by a certain amount.

Question 18

Suppose that banks pay 4 percent interest on checking accounts while U.S.Savings Bonds pay 6 percent interest.Under these conditions

Accepted Answer

A) no nonmonetary assets are willingly held. 
B) a combination of money and nonmonetary assets are willingly held. 
C) no money balances are willingly held. 
D) we do not have sufficient information to tell whether or not any money balances are willingly held. 
A) no nonmonetary assets are willingly held. 
B) a combination of money and nonmonetary assets are willingly held. 
C) no money balances are willingly held. 
D) we do not have sufficient information to tell whether or not any money balances are willingly held.

Question 19

"Crowding-out" occurs in the IS-LM model as rising government spending requires a ________ in the interest rate in order to ________ the demand for money at the new equilibrium,thus ________ planned private investment.

Accepted Answer

A) rise,keep constant,lowering 
B) rise,raise,lowering 
C) rise,lower,raising 
D) fall,keep constant,raising 
E) fall,raise,lowering 
A) rise,keep constant,lowering 
B) rise,raise,lowering 
C) rise,lower,raising 
D) fall,keep constant,raising 
E) fall,raise,lowering

Question 20

From an initial IS-LM equilibrium with a normally-sloped IS curve and a vertical LM curve,the money supply increases.A the new IS-LM equilibrium we have

Accepted Answer

A) higher income and a lower interest rate. 
B) higher income and an unchanged interest rate. 
C) an unchanged income and a lower interest rate. 
D) lower income and an unchanged interest rate. 
E) an unchanged income and a higher interest rate. 
A) higher income and a lower interest rate. 
B) higher income and an unchanged interest rate. 
C) an unchanged income and a lower interest rate. 
D) lower income and an unchanged interest rate. 
E) an unchanged income and a higher interest rate.

Figure 4-6 -In Figure 4-6 above,with IS₀ shifting to IS₁ against the upward-sloping LM curve,crowding-out is the result that

Figure 4-1 -Employing Figure 4-1 above,if Y increases by 3000 and the interest rate is fixed at 5% then the sensitivity of real money balances to changes in real income is

"Real money balances" refers to

When the demand for money depends only on real income,the resulting LM curve causes fiscal policy to have a effect on income.

During the recession phase of the business cycle,households become pessimistic about their future earning capacity as do banks.Nominal interest rates fall during recessions.Mortgage lending could be expected to

Figure 4-5 -In Figure 4-5 above,the money market is in equilibrium

Money is assumed to earn

The practice of "monetizing the debt" is traditionally feared because it is thought to cause

At all points below the current LM curve,

If spending is NOT responsive to changes in the interest rate,then

The "crowding-out" effect refers to the fact that

The "velocity" of money is

Monetary policy will have a large income effect provided the

The Chapter 3 multiplier,because it assumes an interest rate,is usually an of the fiscal policy multiplier in the IS-LM model.

The fiscal-policy multiplier will be greater

An increase in transfer payments would have the same short run effect on the government deficit as an equal

Suppose that Y = 4,000 and we are at a point on the money demand schedule where (M/P)= 600.Should Y rise to 4,200,the same quantity of real money balances

Suppose that banks pay 4 percent interest on checking accounts while U.S.Savings Bonds pay 6 percent interest.Under these conditions

"Crowding-out" occurs in the IS-LM model as rising government spending requires a in the interest rate in order to the demand for money at the new equilibrium,thus planned private investment.

From an initial IS-LM equilibrium with a normally-sloped IS curve and a vertical LM curve,the money supply increases.A the new IS-LM equilibrium we have

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

Figure 4-6 -In Figure 4-6 above,with IS₀ shifting to IS₁ against the upward-sloping LM curve,crowding-out is the result that

Figure 4-1 -Employing Figure 4-1 above,if Y increases by 3000 and the interest rate is fixed at 5% then the sensitivity of real money balances to changes in real income is

"Real money balances" refers to

When the demand for money depends only on real income,the resulting ________ LM curve causes fiscal policy to have a ________ effect on income.

During the recession phase of the business cycle,households become pessimistic about their future earning capacity as do banks.Nominal interest rates fall during recessions.Mortgage lending could be expected to

Figure 4-5 -In Figure 4-5 above,the money market is in equilibrium

Money is assumed to earn

The practice of "monetizing the debt" is traditionally feared because it is thought to cause

At all points below the current LM curve,

If spending is NOT responsive to changes in the interest rate,then

The "crowding-out" effect refers to the fact that

The "velocity" of money is

Monetary policy will have a large income effect provided the

The Chapter 3 multiplier,because it assumes an ________ interest rate,is usually an ________ of the fiscal policy multiplier in the IS-LM model.

The fiscal-policy multiplier will be greater

An increase in transfer payments would have the same short run effect on the government deficit as an equal

Suppose that Y = 4,000 and we are at a point on the money demand schedule where (M/P)= 600.Should Y rise to 4,200,the same quantity of real money balances

Suppose that banks pay 4 percent interest on checking accounts while U.S.Savings Bonds pay 6 percent interest.Under these conditions

"Crowding-out" occurs in the IS-LM model as rising government spending requires a ________ in the interest rate in order to ________ the demand for money at the new equilibrium,thus ________ planned private investment.

From an initial IS-LM equilibrium with a normally-sloped IS curve and a vertical LM curve,the money supply increases.A the new IS-LM equilibrium we have

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

When the demand for money depends only on real income,the resulting LM curve causes fiscal policy to have a effect on income.

The Chapter 3 multiplier,because it assumes an interest rate,is usually an of the fiscal policy multiplier in the IS-LM model.

"Crowding-out" occurs in the IS-LM model as rising government spending requires a in the interest rate in order to the demand for money at the new equilibrium,thus planned private investment.