Question 1

In the basic Keynesian-cross model,actual expenditures equal:

Accepted Answer

A)  GDP. 
B)  the money supply. 
C)  the supply of real balances. 
D)  unplanned inventory investment. 
A)  GDP. 
B)  the money supply. 
C)  the supply of real balances. 
D)  unplanned inventory investment.

Question 2

A decrease in the nominal money supply,other things being equal,will shift the LM curve:

Accepted Answer

A)  upward and to the right. 
B)  downward and to the right. 
C)  downward and to the left. 
D)  upward and to the left. 
A)  upward and to the right. 
B)  downward and to the right. 
C)  downward and to the left. 
D)  upward and to the left.

Question 3

Suppose the government decides to reduce the budget deficit by cutting government spending.a.Use the Keynesian-cross model to illustrate graphically the impact of a reduction in government purchases on the equilibrium level of income.Be sure to label:
i.the axes
ii.the curves
iii.the initial equilibrium values
iv.the direction the curve shifts
v.the terminal equilibrium values.b.Explain in words what happens to equilibrium income as a result of the cut in government spending and the time horizon appropriate for this analysis.

Accepted Answer

a.@#IMG-DLM&
 b.The equilibrium level of

Question 4

Along an IS curve all of the following are always true except:

Accepted Answer

A)  planned expenditures equal actual expenditures. 
B)  planned expenditures equal income. 
C)  the demand for real balances equals the supply of real balances. 
D)  demand and supply of loanable funds are equal. 
A)  planned expenditures equal actual expenditures. 
B)  planned expenditures equal income. 
C)  the demand for real balances equals the supply of real balances. 
D)  demand and supply of loanable funds are equal.

Question 5

Assume that the money demand function is (M/P)d = 2,200 - 200r,where r is the interest rate in percent.The money supply M is 2,000 and the price level P is 2.The equilibrium interest rate is ______ percent.

Accepted Answer

A)  2 
B)  4 
C)  6 
D)  8 
A)  2 
B)  4 
C)  6 
D)  8

Question 6

The government-purchases multiplier indicates how much ______ change(s)in response to a $1 change in government purchases.

Accepted Answer

A)  the budget deficit 
B)  consumption 
C)  income 
D)  real balances 
A)  the budget deficit 
B)  consumption 
C)  income 
D)  real balances

Question 7

In the Keynesian-cross model,actual expenditures differ from planned expenditures by the amount of:

Accepted Answer

A)  liquidity preference. 
B)  the government-purchases multiplier. 
C)  unplanned inventory investment. 
D)  real money balances. 
A)  liquidity preference. 
B)  the government-purchases multiplier. 
C)  unplanned inventory investment. 
D)  real money balances.

Question 8

Use the following to answer questions :
Exhibit: Market for Real Money Balances
  
-(Exhibit: Market for Real Money Balances)Based on the graph,if the interest rate is r1,then people will ______ bonds and the interest rate will ______.

Accepted Answer

A)  sell; rise 
B)  sell; fall 
C)  buy; rise 
D)  buy; fall 
A)  sell; rise 
B)  sell; fall 
C)  buy; rise 
D)  buy; fall

Question 9

When the LM curve is drawn,the quantity that is held fixed is:

Accepted Answer

A)  the nominal money supply. 
B)  the real money supply. 
C)  government spending. 
D)  the tax rate. 
A)  the nominal money supply. 
B)  the real money supply. 
C)  government spending. 
D)  the tax rate.

Question 10

An increase in income raises money ______ and ______ the equilibrium interest rate.

Accepted Answer

A)  demand; raises 
B)  demand; lowers 
C)  supply; raises 
D)  supply; lowers 
A)  demand; raises 
B)  demand; lowers 
C)  supply; raises 
D)  supply; lowers

Question 11

In the Keynesian-cross model,assume that the analysis of taxes is changed so that taxes,T,are made a function of income,as in T = T + tY,where T and t are parameters of the tax code and t is positive but less than 1.As compared to a case where t is zero,the multiplier for government purchases in this case will:

Accepted Answer

A)  not change. 
B)  be smaller. 
C)  be bigger. 
D)  be equal to 1. 
A)  not change. 
B)  be smaller. 
C)  be bigger. 
D)  be equal to 1.

Question 12

As an economy moves into a recession,income falls.a.Illustrate graphically the impact of a decrease in income on the equilibrium interest rate using the theory of liquidity preference and the market for real money balances.Be sure to label:
i.the axes
ii.the curves
iii.the initial equilibrium values
iv.the direction the curve shifts
v.the terminal equilibrium values.b.Explain in words what happens to equilibrium interest rate as a result of the open-market purchase.

Accepted Answer

a.@#IMG-DLM&
 b. The

Question 13

When drawn with the interest rate on the vertical axis and income on the horizontal axis,the IS curve will be steeper the:

Accepted Answer

A)  larger the level of government spending. 
B)  smaller the level of government spending. 
C)  greater the sensitivity of investment spending to the interest rate. 
D)  smaller the sensitivity of investment spending to the interest rate. 
A)  larger the level of government spending. 
B)  smaller the level of government spending. 
C)  greater the sensitivity of investment spending to the interest rate. 
D)  smaller the sensitivity of investment spending to the interest rate.

Question 14

An increase in taxes shifts the IS curve,drawn with income along the horizontal axis and the interest rate along the vertical axis:

Accepted Answer

A)  downward and to the left. 
B)  upward and to the right. 
C)  upward and to the left. 
D)  downward and to the right. 
A)  downward and to the left. 
B)  upward and to the right. 
C)  upward and to the left. 
D)  downward and to the right.

Question 15

An IS curve shows combinations of:

Accepted Answer

A)  taxes and government spending. 
B)  nominal money balances and price levels. 
C)  interest rates and income that bring equilibrium in the market for real balances. 
D)  interest rates and income that bring equilibrium in the market for goods and services. 
A)  taxes and government spending. 
B)  nominal money balances and price levels. 
C)  interest rates and income that bring equilibrium in the market for real balances. 
D)  interest rates and income that bring equilibrium in the market for goods and services.

Question 16

Two identical countries,Country A and Country B,can each be described by a Keynesian-cross model.The MPC is .9 in each country.Country A decides to increase spending by $2 billion,while Country B decides to cut taxes by $2 billion.In which country will the new equilibrium level of income be greater?

Accepted Answer

Income in Country A will increase more.T

Question 17

Based on the Keynesian model,one reason to support spending increases over tax cuts as measures to increase output is that:

Accepted Answer

A)  government spending increases the MPC more than tax cuts. 
B)  the government-spending multiplier is larger than the tax multiplier. 
C)  government-spending increases do not lead to unplanned changes in inventories,but tax cuts do. 
D)  increases in government spending increase planned spending,but tax cuts reduce planned spending. 
A)  government spending increases the MPC more than tax cuts. 
B)  the government-spending multiplier is larger than the tax multiplier. 
C)  government-spending increases do not lead to unplanned changes in inventories,but tax cuts do. 
D)  increases in government spending increase planned spending,but tax cuts reduce planned spending.

Question 18

The theory of liquidity preference implies that the quantity of real money balances demanded is:

Accepted Answer

A)  negatively related to both the interest rate and income. 
B)  positively related to both the interest rate and income. 
C)  positively related to the interest rate and negatively related to income. 
D)  negatively related to the interest rate and positively related to income. 
A)  negatively related to both the interest rate and income. 
B)  positively related to both the interest rate and income. 
C)  positively related to the interest rate and negatively related to income. 
D)  negatively related to the interest rate and positively related to income.

Question 19

In the Keynesian-cross model,a realistic value for the expenditure multiplier is:

Accepted Answer

A)  5.0. 
B)  2.5. 
C)  1.5. 
D)  0.5. 
A)  5.0. 
B)  2.5. 
C)  1.5. 
D)  0.5.

Question 20

If consumption is given by C = 200 + 0.75(Y - T)and investment is given by I = 200 - 25r,then the formula for the IS curve is:

Accepted Answer

A)  Y = 400 - 0.75T - 25r + G. 
B)  Y = 1,600 - 3T - 100r + 4G. 
C)  Y = 400 + 0.75T - 25r - G. 
D)  Y = 1,600 + 3T - 100r - 4G. 
A)  Y = 400 - 0.75T - 25r + G. 
B)  Y = 1,600 - 3T - 100r + 4G. 
C)  Y = 400 + 0.75T - 25r - G. 
D)  Y = 1,600 + 3T - 100r - 4G.

In the basic Keynesian-cross model,actual expenditures equal:

A decrease in the nominal money supply,other things being equal,will shift the LM curve:

Along an IS curve all of the following are always true except:

Assume that the money demand function is (M/P)^d = 2,200 - 200r,where r is the interest rate in percent.The money supply M is 2,000 and the price level P is 2.The equilibrium interest rate is ______ percent.

The government-purchases multiplier indicates how much ______ change(s)in response to a $1 change in government purchases.

In the Keynesian-cross model,actual expenditures differ from planned expenditures by the amount of:

Use the following to answer questions : Exhibit: Market for Real Money Balances -(Exhibit: Market for Real Money Balances)Based on the graph,if the interest rate is r₁,then people will bonds and the interest rate will .

When the LM curve is drawn,the quantity that is held fixed is:

An increase in income raises money and the equilibrium interest rate.

When drawn with the interest rate on the vertical axis and income on the horizontal axis,the IS curve will be steeper the:

An increase in taxes shifts the IS curve,drawn with income along the horizontal axis and the interest rate along the vertical axis:

An IS curve shows combinations of:

Two identical countries,Country A and Country B,can each be described by a Keynesian-cross model.The MPC is .9 in each country.Country A decides to increase spending by $2 billion,while Country B decides to cut taxes by $2 billion.In which country will the new equilibrium level of income be greater?

Based on the Keynesian model,one reason to support spending increases over tax cuts as measures to increase output is that:

The theory of liquidity preference implies that the quantity of real money balances demanded is:

In the Keynesian-cross model,a realistic value for the expenditure multiplier is:

If consumption is given by C = 200 + 0.75(Y - T)and investment is given by I = 200 - 25r,then the formula for the IS curve is:

The Science of Macroeconomics

The Data of Macroeconomics

The Open Economy

Unemployment

Economic Growth I

Economic Growth II

Introduction to Economic Fluctuations

Aggregate Supply and the Short-Run

Stabilization Policy

Government Debt and Budget Deficits

Investment

Money Supply and Money Demand

The Financial System

Filters

Exam 10: Aggregate Demand I

In the basic Keynesian-cross model,actual expenditures equal:

A decrease in the nominal money supply,other things being equal,will shift the LM curve:

Along an IS curve all of the following are always true except:

Assume that the money demand function is (M/P)d = 2,200 - 200r,where r is the interest rate in percent.The money supply M is 2,000 and the price level P is 2.The equilibrium interest rate is ______ percent.

The government-purchases multiplier indicates how much ______ change(s)in response to a $1 change in government purchases.

In the Keynesian-cross model,actual expenditures differ from planned expenditures by the amount of:

Use the following to answer questions : Exhibit: Market for Real Money Balances -(Exhibit: Market for Real Money Balances)Based on the graph,if the interest rate is r1,then people will ______ bonds and the interest rate will ______.

When the LM curve is drawn,the quantity that is held fixed is:

An increase in income raises money ______ and ______ the equilibrium interest rate.

When drawn with the interest rate on the vertical axis and income on the horizontal axis,the IS curve will be steeper the:

An increase in taxes shifts the IS curve,drawn with income along the horizontal axis and the interest rate along the vertical axis:

An IS curve shows combinations of:

Based on the Keynesian model,one reason to support spending increases over tax cuts as measures to increase output is that:

The theory of liquidity preference implies that the quantity of real money balances demanded is:

In the Keynesian-cross model,a realistic value for the expenditure multiplier is:

If consumption is given by C = 200 + 0.75(Y - T)and investment is given by I = 200 - 25r,then the formula for the IS curve is:

The Science of Macroeconomics

The Data of Macroeconomics

The Open Economy

Unemployment

Economic Growth I

Economic Growth II

Introduction to Economic Fluctuations

Aggregate Supply and the Short-Run

Stabilization Policy

Government Debt and Budget Deficits

Investment

Money Supply and Money Demand

The Financial System

Filters

Assume that the money demand function is (M/P)^d = 2,200 - 200r,where r is the interest rate in percent.The money supply M is 2,000 and the price level P is 2.The equilibrium interest rate is ______ percent.

Use the following to answer questions : Exhibit: Market for Real Money Balances -(Exhibit: Market for Real Money Balances)Based on the graph,if the interest rate is r₁,then people will bonds and the interest rate will .

An increase in income raises money and the equilibrium interest rate.