Question 1

Define the IS curve.

Accepted Answer

The IS curve shows the relationship between aggregate output and the real interest rate when the goods market is in equilibrium.

Question 2

A decrease in autonomous consumer expenditure causes the equilibrium level of aggregate output to ________ at any given interest rate and shifts the ________ curve to the ________,everything else held constant.

Accepted Answer

A)  rise; LM; right 
B)  rise; IS; right 
C)  fall; IS; left 
D)  fall; LM; left 
A)  rise; LM; right 
B)  rise; IS; right 
C)  fall; IS; left 
D)  fall; LM; left C

Question 3

An increase in investment spending because companies become more optimistic about investment profitability causes the aggregate demand function to shift ________ and the equilibrium level of aggregate output to ________,everything else held constant.

Accepted Answer

A)  up; rise 
B)  up; fall 
C)  down; rise 
D)  down; fall 
A)  up; rise 
B)  up; fall 
C)  down; rise 
D)  down; fall A

Question 4

Assume that autonomous consumption equals $200 and that the mpc equals 0.8.If disposable income equals $1000,then total consumption equals ________.

Accepted Answer

A)  $80 
B)  $200 
C)  $800 
D)  $1000 
A)  $80 
B)  $200 
C)  $800 
D)  $1000

Question 5

In an open economy,aggregate demand is the sum of ________.

Accepted Answer

A)  consumer expenditure, actual investment spending, and government spending 
B)  consumer expenditure, planned investment spending, and government spending 
C)  consumer expenditure, actual investment spending, government spending, and net exports 
D)  consumer expenditure, planned investment spending, government spending, and net exports 
A)  consumer expenditure, actual investment spending, and government spending 
B)  consumer expenditure, planned investment spending, and government spending 
C)  consumer expenditure, actual investment spending, government spending, and net exports 
D)  consumer expenditure, planned investment spending, government spending, and net exports

Question 6

In the simple Keynesian model,equilibrium aggregate output is determined by ________.

Accepted Answer

A)  aggregate demand 
B)  aggregate supply 
C)  the national demand for labor 
D)  the price level 
A)  aggregate demand 
B)  aggregate supply 
C)  the national demand for labor 
D)  the price level

Question 7

Everything else held constant,changes in the interest rate affect planned investment spending and hence the equilibrium level of output,but this change in investment spending ________.

Accepted Answer

A)  merely causes a movement along the IS curve and not a shift 
B)  is crowded out by higher taxes 
C)  is crowded out by higher government spending 
D)  is crowded out by lower consumer expenditures 
A)  merely causes a movement along the IS curve and not a shift 
B)  is crowded out by higher taxes 
C)  is crowded out by higher government spending 
D)  is crowded out by lower consumer expenditures

Question 8

Keynes believed that unstable investment caused the Great Depression.Using the simple Keynesian model,explain how a fall in investment affects equilibrium output.

Accepted Answer

A fall in investment will redu

Question 9

A difference between inventory investment and fixed investment is that ________.

Accepted Answer

A)  fixed investment is never unplanned 
B)  fixed investment is never planned 
C)  inventory investment is never unplanned 
D)  unplanned inventory investment is always zero 
A)  fixed investment is never unplanned 
B)  fixed investment is never planned 
C)  inventory investment is never unplanned 
D)  unplanned inventory investment is always zero

Question 10

An increase in autonomous consumer expenditure causes the aggregate demand function to shift up,the equilibrium level of aggregate output to ________,and the IS curve to shift to the ________,everything else held constant.

Accepted Answer

A)  rise; left 
B)  rise; right 
C)  fall; left 
D)  fall; right 
A)  rise; left 
B)  rise; right 
C)  fall; left 
D)  fall; right

Question 11

When the interest rate is ________,________ investments in physical capital will earn more than the cost of borrowed funds,so planned investment spending is ________.

Accepted Answer

A)  high; few; high 
B)  high; few; low 
C)  low; few; high 
D)  low; many; low 
E)  high; many; high 
A)  high; few; high 
B)  high; few; low 
C)  low; few; high 
D)  low; many; low 
E)  high; many; high

Question 12

The ________ describes points for which the goods market is in equilibrium.

Accepted Answer

A)  LM curve 
B)  IS curve 
C)  consumption function 
D)  investment schedule 
A)  LM curve 
B)  IS curve 
C)  consumption function 
D)  investment schedule

Question 13

A fall in inventories is synonymous with ________ investment.

Accepted Answer

A)  negative fixed 
B)  positive fixed 
C)  positive inventory 
D)  negative inventory 
A)  negative fixed 
B)  positive fixed 
C)  positive inventory 
D)  negative inventory

Question 14

Using the information contained in Situation 20-1,if planned investment decreases by $100,the equilibrium aggregate output will change by ________.

Accepted Answer

A)  -$1,000 
B)  $-100 
C)  $100 
D)  $1,000 
A)  -$1,000 
B)  $-100 
C)  $100 
D)  $1,000

Question 15

Economists define investment as the purchase of ________.

Accepted Answer

A)  a new physical asset such as a new machine or a new house 
B)  any physical asset, whether new or not, used by business to increase production 
C)  any physical asset used by business to increase production and the repurchase of common stock 
D)  business spending on capital and household spending on durable goods 
A)  a new physical asset such as a new machine or a new house 
B)  any physical asset, whether new or not, used by business to increase production 
C)  any physical asset used by business to increase production and the repurchase of common stock 
D)  business spending on capital and household spending on durable goods

Question 16

Keynes mentioned two factors that influenced planned investment spending.They are ________.

Accepted Answer

A)  interest rates and disposable income 
B)  interest rates and business expectations about the future 
C)  disposable income and business expectations about the future 
D)  interest rates and business expectations about inflation 
A)  interest rates and disposable income 
B)  interest rates and business expectations about the future 
C)  disposable income and business expectations about the future 
D)  interest rates and business expectations about inflation

Question 17

A decrease in investment spending because companies become more pessimistic about investment profitability causes the aggregate demand function to shift ________,the equilibrium level of aggregate output to fall,and the IS curve to shift to the ________,everything else held constant.

Accepted Answer

A)  up; left 
B)  up; right 
C)  down; left 
D)  down; right 
A)  up; left 
B)  up; right 
C)  down; left 
D)  down; right

Question 18

If the consumption function is expressed as C = a + mpc × YD,then "a" represents ________.

Accepted Answer

A)  autonomous consumer expenditure 
B)  the marginal propensity to consume 
C)  the expenditure multiplier 
D)  disposable income 
A)  autonomous consumer expenditure 
B)  the marginal propensity to consume 
C)  the expenditure multiplier 
D)  disposable income

Question 19

If the consumption function is expressed as C = a + mpc × YD,then "mpc" represents ________.

Accepted Answer

A)  autonomous consumer expenditure 
B)  the marginal propensity to consume 
C)  the expenditure multiplier 
D)  disposable income 
A)  autonomous consumer expenditure 
B)  the marginal propensity to consume 
C)  the expenditure multiplier 
D)  disposable income

Question 20

A decline in autonomous consumer expenditure causes the aggregate demand function to shift down,the equilibrium level of aggregate output to ________,and the IS curve to shift to the ________,everything else held constant.

Accepted Answer

A)  rise; left 
B)  rise; right 
C)  fall; left 
D)  fall; right 
A)  rise; left 
B)  rise; right 
C)  fall; left 
D)  fall; right

Exam 22: The Is Curve

Define the IS curve.

A decrease in autonomous consumer expenditure causes the equilibrium level of aggregate output to ________ at any given interest rate and shifts the ________ curve to the ________,everything else held constant.

An increase in investment spending because companies become more optimistic about investment profitability causes the aggregate demand function to shift ________ and the equilibrium level of aggregate output to ________,everything else held constant.

Assume that autonomous consumption equals $200 and that the mpc equals 0.8.If disposable income equals $1000,then total consumption equals ________.

In an open economy,aggregate demand is the sum of ________.

In the simple Keynesian model,equilibrium aggregate output is determined by ________.

Everything else held constant,changes in the interest rate affect planned investment spending and hence the equilibrium level of output,but this change in investment spending ________.

Keynes believed that unstable investment caused the Great Depression.Using the simple Keynesian model,explain how a fall in investment affects equilibrium output.

A difference between inventory investment and fixed investment is that ________.

An increase in autonomous consumer expenditure causes the aggregate demand function to shift up,the equilibrium level of aggregate output to ________,and the IS curve to shift to the ________,everything else held constant.

When the interest rate is ________,________ investments in physical capital will earn more than the cost of borrowed funds,so planned investment spending is ________.

The ________ describes points for which the goods market is in equilibrium.

A fall in inventories is synonymous with ________ investment.

Using the information contained in Situation 20-1,if planned investment decreases by $100,the equilibrium aggregate output will change by ________.

Economists define investment as the purchase of ________.

Keynes mentioned two factors that influenced planned investment spending.They are ________.

A decrease in investment spending because companies become more pessimistic about investment profitability causes the aggregate demand function to shift ________,the equilibrium level of aggregate output to fall,and the IS curve to shift to the ________,everything else held constant.

If the consumption function is expressed as C = a + mpc × YD,then "a" represents ________.

If the consumption function is expressed as C = a + mpc × YD,then "mpc" represents ________.

A decline in autonomous consumer expenditure causes the aggregate demand function to shift down,the equilibrium level of aggregate output to ________,and the IS curve to shift to the ________,everything else held constant.

Why Study Money, banking, and Financial Markets

An Overview of the Financial System

What Is Money

Understanding Interest Rates

The Behaviour of Interest Rates

The Risk and Term Structure of Interest Rates

The Stock Market, the Theory of Rational Expectations, and the Efficient Market Hypothesis

An Economic Analysis of Financial Structure

Financial Crises

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

Nonbank Finance

Banking and the Management of Financial Institutions

Risk Management With Financial Derivatives

Central Banks and the Bank of Canada

The Money Supply Process

Tools of Monetary Policy

The Conduct of Monetary Policy: Strategy and Tactics

The Foreign Exchange Market

The International Financial System

Quantity Theory, inflation, and the Demand for Money

The Monetary Policy and Aggregate Demand Curves

Aggregate Demand and Supply Analysis

Monetary Policy Theory

The Role of Expectations in Monetary Policy

Transmission Mechanisms of Monetary Policy

The ISLM Model

Filters

A decrease in autonomous consumer expenditure causes the equilibrium level of aggregate output to at any given interest rate and shifts the curve to the ,everything else held constant.

An increase in investment spending because companies become more optimistic about investment profitability causes the aggregate demand function to shift and the equilibrium level of aggregate output to ,everything else held constant.

An increase in autonomous consumer expenditure causes the aggregate demand function to shift up,the equilibrium level of aggregate output to ,and the IS curve to shift to the ,everything else held constant.

When the interest rate is , investments in physical capital will earn more than the cost of borrowed funds,so planned investment spending is .

A decrease in investment spending because companies become more pessimistic about investment profitability causes the aggregate demand function to shift ,the equilibrium level of aggregate output to fall,and the IS curve to shift to the ,everything else held constant.

A decline in autonomous consumer expenditure causes the aggregate demand function to shift down,the equilibrium level of aggregate output to ,and the IS curve to shift to the ,everything else held constant.