Question 1

Which market adjusts the quickest in response to shocks to the economy?

Accepted Answer

A) The asset market 
B) The labor market 
C) The goods market 
D) The asset,labor,and goods markets adjust at about the same speed to eliminate a disequilibrium in the macroeconomy. 
A) The asset market 
B) The labor market 
C) The goods market 
D) The asset,labor,and goods markets adjust at about the same speed to eliminate a disequilibrium in the macroeconomy. A

Question 2

The aggregate demand curve shows

Accepted Answer

A) the demand for goods depending on the relative price of goods compared to financial assets. 
B) the amount of output that can be obtained given the current production function in the economy. 
C) the relation between the aggregate quantity of goods demanded and the price level. 
D) the relation between the real interest rate and output when the goods market clears. 
A) the demand for goods depending on the relative price of goods compared to financial assets. 
B) the amount of output that can be obtained given the current production function in the economy. 
C) the relation between the aggregate quantity of goods demanded and the price level. 
D) the relation between the real interest rate and output when the goods market clears. C

Question 3

Calculate the real money supply growth rate when the nominal money supply increases by 10% and the price level increases by each of the following percentages: a)2%; b)8%; c)10%; d)15%.

Accepted Answer

Real money supply growth rate = nominal money supply growth rate minus the price level growth rate.(The price level growth rate is the inflation rate.)
(a)Real money supply growth rate = 10% - 2% = 8%.
(b)Real money supply growth rate = 10% - 8% = 2%.
(c)Real money supply growth rate = 10% - 10% = 0%.
(d)Real money supply growth rate = 10% - 15% = -5%.

Question 4

Which of the following changes shifts the long-run aggregate supply curve to the right?

Accepted Answer

A) A demographic change that increases the labor supply 
B) A decrease in the demand for labor 
C) An increase in consumer confidence 
D) A decrease in taxes (assuming Ricardian equivalence doesn't hold) 
A) A demographic change that increases the labor supply 
B) A decrease in the demand for labor 
C) An increase in consumer confidence 
D) A decrease in taxes (assuming Ricardian equivalence doesn't hold)

Question 5

An increase in the expected future marginal product of capital would cause the IS curve to

Accepted Answer

A) shift up and to the right. 
B) shift down and to the left. 
C) remain unchanged. 
D) remain unchanged if firms face borrowing constraints; otherwise,shift down and to the left. 
A) shift up and to the right. 
B) shift down and to the left. 
C) remain unchanged. 
D) remain unchanged if firms face borrowing constraints; otherwise,shift down and to the left.

Question 6

An increase in labor supply would cause the IS curve to

Accepted Answer

A) shift up and to the right. 
B) shift down and to the left. 
C) remain unchanged. 
D) shift up and to the right only if people face borrowing constraints. 
A) shift up and to the right. 
B) shift down and to the left. 
C) remain unchanged. 
D) shift up and to the right only if people face borrowing constraints.

Question 7

The IS curve

Accepted Answer

A) is horizontal. 
B) is vertical. 
C) slopes downward. 
D) slopes upward. 
A) is horizontal. 
B) is vertical. 
C) slopes downward. 
D) slopes upward.

Question 8

A temporary decrease in government purchases causes the real interest rate to ________ and the price level to ________ in general equilibrium.

Accepted Answer

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

Question 9

Suppose the intersection of the IS and LM curves is to the left of the FE line.A decrease in the price level would most likely eliminate a disequilibrium among the asset,labor,and goods markets by

Accepted Answer

A) shifting the LM curve down and to the right. 
B) shifting the IS curve up and to the right. 
C) shifting the IS curve down and to the left. 
D) shifting the FE curve to the left. 
A) shifting the LM curve down and to the right. 
B) shifting the IS curve up and to the right. 
C) shifting the IS curve down and to the left. 
D) shifting the FE curve to the left.

Question 10

Looking only at the asset market,an increase in output would cause

Accepted Answer

A) the LM curve to shift down and to the right. 
B) the LM curve to shift up and to the left. 
C) an increase in the real interest rate along the LM curve. 
D) a decrease in the real interest rate along the LM curve. 
A) the LM curve to shift down and to the right. 
B) the LM curve to shift up and to the left. 
C) an increase in the real interest rate along the LM curve. 
D) a decrease in the real interest rate along the LM curve.

Question 11

Oil prices have risen temporarily,due to political uncertainty in the Middle East.An advisor to the Fed suggests,"Higher oil prices reduce aggregate demand.To offset this we must increase the money supply.Then the price level won't need to adjust to restore equilibrium,and we'll prevent a recession." Analyze this statement using the IS-LM model.

Accepted Answer

This is a change in the FE lin

Question 12

The long-run aggregate supply curve

Accepted Answer

A) is vertical. 
B) slopes upward. 
C) is horizontal. 
D) slopes downward. 
A) is vertical. 
B) slopes upward. 
C) is horizontal. 
D) slopes downward.

Question 13

At a given output level,a temporary reduction in government purchases will

Accepted Answer

A) increase desired saving,causing the IS curve to shift down and to the left. 
B) increase desired saving,causing the IS curve to shift up and to the right. 
C) decrease desired saving,causing the IS curve to shift down and to the left. 
D) decrease desired saving,causing the IS curve to shift up and to the right. 
A) increase desired saving,causing the IS curve to shift down and to the left. 
B) increase desired saving,causing the IS curve to shift up and to the right. 
C) decrease desired saving,causing the IS curve to shift down and to the left. 
D) decrease desired saving,causing the IS curve to shift up and to the right.

Question 14

Desired consumption is Cd = 2000 + 0.9Y - 100,000r - G,and desired investment is Id = 1000 - 45,000r.Real money demand is Md/P = Y - 6000i.Other variables are ?e = 0.03,G = 500,   = 1000,and M = 2100.
(a)Find the equilibrium values of the real interest rate,consumption,investment,and the price level.
(b)Suppose government purchases decline to 400.What happens to the variables listed in part (a)?
(c)Suppose government purchases rise to 600.What happens to the variables listed in part (a)?
(d)What feature in this example leads to the result that you don't need to know the amount of taxes collected by the government to find the equilibrium?

Accepted Answer

(a)r = 0.02,C = 400,I = 100,P = 3.
(b)C

Question 15

The aggregate demand curve shows the combinations of output and the price level that put the economy on

Accepted Answer

A) the FE line and the IS curve. 
B) the FE line,the IS curve,and the LM curve. 
C) the IS curve. 
D) the IS curve and the LM curve. 
A) the FE line and the IS curve. 
B) the FE line,the IS curve,and the LM curve. 
C) the IS curve. 
D) the IS curve and the LM curve.

Question 16

An adverse supply shock would cause the FE line to

Accepted Answer

A) shift to the right. 
B) shift to the left. 
C) remain unchanged. 
D) remain unchanged if the shock is temporary; shift to the right if the shock is permanent. 
A) shift to the right. 
B) shift to the left. 
C) remain unchanged. 
D) remain unchanged if the shock is temporary; shift to the right if the shock is permanent.

Question 17

For each of the following changes,which equilibrium curve (IS,LM,or FE)is shifted? Draw the change in the underlying demand or supply curves (for example,money demand and supply for the LM curve)and show how the equilibrium curve changes.
(a)Expected inflation increases.
(b)The future marginal productivity of capital increases.
(c)Labor supply decreases.
(d)Future income declines.
(e)There's a temporary beneficial supply shock.
(f)The nominal interest rate on money rises.

Accepted Answer

(a)LM shifts down and to the r

Question 18

A change that increases the real money supply relative to real money demand causes

Accepted Answer

A) the LM curve to shift down and to the right. 
B) the LM curve to shift up and to the left. 
C) the IS curve to shift down and to the left. 
D) the IS curve to shift up and to the right. 
A) the LM curve to shift down and to the right. 
B) the LM curve to shift up and to the left. 
C) the IS curve to shift down and to the left. 
D) the IS curve to shift up and to the right.

Question 19

Describe what happens to the FE line if government purchases increase.

Accepted Answer

In the classical model of the labor mark

Question 20

Which of the following changes shifts the SRAS curve down?

Accepted Answer

A) An increase in the labor force 
B) An increase in the money supply 
C) A decrease in government purchases 
D) A decrease in firms' costs 
A) An increase in the labor force 
B) An increase in the money supply 
C) A decrease in government purchases 
D) A decrease in firms' costs

Which market adjusts the quickest in response to shocks to the economy?

The aggregate demand curve shows

Calculate the real money supply growth rate when the nominal money supply increases by 10% and the price level increases by each of the following percentages: a)2%; b)8%; c)10%; d)15%.

Which of the following changes shifts the long-run aggregate supply curve to the right?

An increase in the expected future marginal product of capital would cause the IS curve to

An increase in labor supply would cause the IS curve to

The IS curve

A temporary decrease in government purchases causes the real interest rate to and the price level to in general equilibrium.

Suppose the intersection of the IS and LM curves is to the left of the FE line.A decrease in the price level would most likely eliminate a disequilibrium among the asset,labor,and goods markets by

Looking only at the asset market,an increase in output would cause

The long-run aggregate supply curve

At a given output level,a temporary reduction in government purchases will

The aggregate demand curve shows the combinations of output and the price level that put the economy on

An adverse supply shock would cause the FE line to

A change that increases the real money supply relative to real money demand causes

Describe what happens to the FE line if government purchases increase.

Which of the following changes shifts the SRAS curve down?

Introduction to Macroeconomics

The Measurement and Structure of the National Economy

Productivity, Output, and Employment

Consumption, Saving, and Investment

Saving and Investment in the Open Economy

Long-Run Economic Growth

The Asset Market, Money, and Prices

Business Cycles

Classical Business Cycle Analysis

Keynesianism: The Macroeconomics of Wage and Price Rigidity

Unemployment and Inflation

Exchange Rates,Business Cycles,and Macroeconomic Policy in the Open Economy

Monetary Policy and the Federal Reserve System

Government Spending and Its Financing

Filters

Exam 9: The IS-LM/AD-AS Model

Which market adjusts the quickest in response to shocks to the economy?

The aggregate demand curve shows

Calculate the real money supply growth rate when the nominal money supply increases by 10% and the price level increases by each of the following percentages: a)2%; b)8%; c)10%; d)15%.

Which of the following changes shifts the long-run aggregate supply curve to the right?

An increase in the expected future marginal product of capital would cause the IS curve to

An increase in labor supply would cause the IS curve to

The IS curve

A temporary decrease in government purchases causes the real interest rate to ________ and the price level to ________ in general equilibrium.

Suppose the intersection of the IS and LM curves is to the left of the FE line.A decrease in the price level would most likely eliminate a disequilibrium among the asset,labor,and goods markets by

Looking only at the asset market,an increase in output would cause

The long-run aggregate supply curve

At a given output level,a temporary reduction in government purchases will

The aggregate demand curve shows the combinations of output and the price level that put the economy on

An adverse supply shock would cause the FE line to

A change that increases the real money supply relative to real money demand causes

Describe what happens to the FE line if government purchases increase.

Which of the following changes shifts the SRAS curve down?

Introduction to Macroeconomics

The Measurement and Structure of the National Economy

Productivity, Output, and Employment

Consumption, Saving, and Investment

Saving and Investment in the Open Economy

Long-Run Economic Growth

The Asset Market, Money, and Prices

Business Cycles

Classical Business Cycle Analysis

Keynesianism: The Macroeconomics of Wage and Price Rigidity

Unemployment and Inflation

Exchange Rates,Business Cycles,and Macroeconomic Policy in the Open Economy

Monetary Policy and the Federal Reserve System

Government Spending and Its Financing

Filters

A temporary decrease in government purchases causes the real interest rate to and the price level to in general equilibrium.