Question 1

A decrease in the effective tax rate on 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 taxes are fully deductible from income; otherwise,shift up and to the right. 
A) shift up and to the right. 
B) shift down and to the left. 
C) remain unchanged. 
D) remain unchanged if taxes are fully deductible from income; otherwise,shift up and to the right.

Question 2

Suppose you were a forecaster of the real wage rate,employment,output,the real interest rate,consumption,investment,and the price level.A shock hits the economy,which you think is a temporary adverse supply shock.
(a)What are your forecasts for each of the variables listed above (rise,fall,and no change)?
(b)What if the shock was really due to people's reduced expectations about their future income.Which variables did you forecast correctly,and which did you forecast incorrectly?

Accepted Answer

(a)The real wage rate,employment,output,

Question 3

Keynesian economists think general equilibrium is not attained quickly because

Accepted Answer

A) the real interest rate adjusts slowly. 
B) the level of output adjusts slowly. 
C) the real wage rate adjusts slowly. 
D) the price level adjusts slowly. 
A) the real interest rate adjusts slowly. 
B) the level of output adjusts slowly. 
C) the real wage rate adjusts slowly. 
D) the price level adjusts slowly.

Question 4

The IS curve shows the combinations of output and the real interest rate for which

Accepted Answer

A) the goods market is in equilibrium. 
B) the labor market is in equilibrium. 
C) the financial asset market is in equilibrium. 
D) an increase in output will cause the market-clearing interest rate to be bid up. 
A) the goods market is in equilibrium. 
B) the labor market is in equilibrium. 
C) the financial asset market is in equilibrium. 
D) an increase in output will cause the market-clearing interest rate to be bid up.

Question 5

After a temporary beneficial supply shock hits the economy,general equilibrium is restored by

Accepted Answer

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

Question 6

A temporary supply shock,such as an increase in oil prices,would

Accepted Answer

A) shift the IS curve down and to the left and leave the FE line unchanged. 
B) shift the IS curve down and to the left and shift the FE line to the left. 
C) shift the IS curve up and to the right,but leave the FE line unchanged. 
D) have no effect on the IS curve. 
A) shift the IS curve down and to the left and leave the FE line unchanged. 
B) shift the IS curve down and to the left and shift the FE line to the left. 
C) shift the IS curve up and to the right,but leave the FE line unchanged. 
D) have no effect on the IS curve.

Question 7

An increase in the money 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 8

A temporary decline in productivity 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 9

To reach general equilibrium,the price level adjusts to shift the ________ until it intersects with the ________.

Accepted Answer

A) IS curve; FE line and LM curve 
B) FE line; LM and IS curves 
C) LM curve; FE line and IS curve 
D) ND curve; FE line and NS curve 
A) IS curve; FE line and LM curve 
B) FE line; LM and IS curves 
C) LM curve; FE line and IS curve 
D) ND curve; FE line and NS curve

Question 10

For each of the following changes,what happens to the real interest rate and output in the very short run,before the price level has adjusted to restore general equilibrium?
(a)Wealth rises.
(b)Money supply rises.
(c)The future marginal productivity of capital increases.
(d)Expected inflation declines.
(e)Future income declines.

Accepted Answer

(a)The IS curve shifts up and to the rig

Question 11

An increase in wealth that doesn't affect labor supply would cause the IS curve to ________ and the FE line to ________.

Accepted Answer

A) shift down and to the left; be unchanged 
B) shift down and to the left; shift left 
C) shift up and to the right; be unchanged 
D) shift up and to the right; shift left 
A) shift down and to the left; be unchanged 
B) shift down and to the left; shift left 
C) shift up and to the right; be unchanged 
D) shift up and to the right; shift left

Question 12

Which of the following curves in the IS-LM model is vertical?

Accepted Answer

A) The IS curve 
B) The LM curve 
C) The FE line 
D) The AD curve 
A) The IS curve 
B) The LM curve 
C) The FE line 
D) The AD curve

Question 13

The FE line shows the level of output at which the ________ market is in equilibrium.

Accepted Answer

A) Goods 
B) Asset 
C) Labor 
D) Money 
A) Goods 
B) Asset 
C) Labor 
D) Money

Question 14

Suppose the Federal Reserve's short-run response to any change in the economy is to change the money supply to maintain the existing real interest rate.What would happen to money supply if there were a reduction in government purchases? Given the Fed's policy,what would happen in the very short run (before general equilibrium is restored)to output and the real interest rate? What must happen to the LM curve and the price level to restore general equilibrium?

Accepted Answer

The decrease in G shifts the IS curve do

Question 15

The Fed has announced that it plans to lower the rate of monetary growth from 10% per year to 2% per year.You would expect this announcement to directly

Accepted Answer

A) increase money demand,shifting the LM curve up and to the left. 
B) increase money demand,shifting the LM curve down and to the right. 
C) decrease money demand,shifting the LM curve up and to the left. 
D) decrease money demand,shifting the LM curve down and to the right. 
A) increase money demand,shifting the LM curve up and to the left. 
B) increase money demand,shifting the LM curve down and to the right. 
C) decrease money demand,shifting the LM curve up and to the left. 
D) decrease money demand,shifting the LM curve down and to the right.

Question 16

The FE line

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 17

When all markets in the economy are simultaneously in equilibrium,we say

Accepted Answer

A) markets are complete. 
B) markets are perfect. 
C) there is disequilibrium. 
D) there is general equilibrium. 
A) markets are complete. 
B) markets are perfect. 
C) there is disequilibrium. 
D) there is general equilibrium.

Question 18

Looking at the macroeconomic statistics for Friedmanland,you discover that at the beginning of the year,the national money supply was equal to $400 million and by the end of the year it was equal to $420 million.You also found out that the inflation rate in Friedmanland was 7%.In this case,you would expect the LM curve to

Accepted Answer

A) shift up and to the left as the real money supply falls. 
B) shift up and to the left as the real money supply rises. 
C) shift down and to the right as the real money supply falls. 
D) shift down and to the right as the real money supply rises. 
A) shift up and to the left as the real money supply falls. 
B) shift up and to the left as the real money supply rises. 
C) shift down and to the right as the real money supply falls. 
D) shift down and to the right as the real money supply rises.

Question 19

A decrease in money supply causes the real interest rate to ________ and the price level to ________ in general equilibrium.

Accepted Answer

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

Question 20

Use the IS-LM model to determine the effects of each of the following on the general equilibrium values of the real wage,employment,output,the real interest rate,consumption,investment,and the price level.
(a)Tougher immigration laws reduce the working-age population.
(b)There's increased volatility in the prices of stocks and bonds.
(c)The government tries to achieve tax equity by an increase in the corporate tax rate.
(d)Increased computerization reduces stock market brokerage costs.

Accepted Answer

(a)The decline in labor supply increases

A decrease in the effective tax rate on capital would cause the IS curve to

Keynesian economists think general equilibrium is not attained quickly because

The IS curve shows the combinations of output and the real interest rate for which

After a temporary beneficial supply shock hits the economy,general equilibrium is restored by

A temporary supply shock,such as an increase in oil prices,would

An increase in the money supply would cause the IS curve to

A temporary decline in productivity would cause the IS curve to

To reach general equilibrium,the price level adjusts to shift the until it intersects with the .

An increase in wealth that doesn't affect labor supply would cause the IS curve to and the FE line to .

Which of the following curves in the IS-LM model is vertical?

The FE line shows the level of output at which the ________ market is in equilibrium.

The Fed has announced that it plans to lower the rate of monetary growth from 10% per year to 2% per year.You would expect this announcement to directly

The FE line

When all markets in the economy are simultaneously in equilibrium,we say

A decrease in money supply causes the real interest rate to and the price level to in general equilibrium.

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

A decrease in the effective tax rate on capital would cause the IS curve to

Keynesian economists think general equilibrium is not attained quickly because

The IS curve shows the combinations of output and the real interest rate for which

After a temporary beneficial supply shock hits the economy,general equilibrium is restored by

A temporary supply shock,such as an increase in oil prices,would

An increase in the money supply would cause the IS curve to

A temporary decline in productivity would cause the IS curve to

To reach general equilibrium,the price level adjusts to shift the ________ until it intersects with the ________.

An increase in wealth that doesn't affect labor supply would cause the IS curve to ________ and the FE line to ________.

Which of the following curves in the IS-LM model is vertical?

The FE line shows the level of output at which the ________ market is in equilibrium.

The Fed has announced that it plans to lower the rate of monetary growth from 10% per year to 2% per year.You would expect this announcement to directly

The FE line

When all markets in the economy are simultaneously in equilibrium,we say

A decrease in money supply causes the real interest rate to ________ and the price level to ________ in general equilibrium.

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

To reach general equilibrium,the price level adjusts to shift the until it intersects with the .

An increase in wealth that doesn't affect labor supply would cause the IS curve to and the FE line to .

A decrease in money supply causes the real interest rate to and the price level to in general equilibrium.