Exam 11: The Is Curve

Refer to the following figure when answering Figure 11.2: Growth Rates of Investment and GDP (Source: U.S. Bureau of Economic Analysis) -Consider Figure 11.2. How does the investment function describe why investment is more volatile than the real GDP?

Derive Hicks's IS relationship beginning with the national income identity.

What is the relationship between the real interest rate and the output gap in the IS curve? Explain.

The investment function is proportional to potential output only.

The basic IS model embodies the life-cycle and permanent-income hypotheses by:

In the IS curve, consumption, government expenditure, exports, and imports are a function of:

The deepest the output gap was during the Great Recession was -7.46 percent in July of 2009. Many believe that the multiplier used was 1.5. If this is true, what is $\bar { x }$ ? What is $\bar { x }$ if the multiplier used was 1.25? What would the percent change in government expenditure be to close this gap assuming monetary policy is NOT being used?

In the late 1970s, the United States experienced a productivity slowdown that decreased the marginal product capital. This caused:

The I in the IS curve stands for ________ and S denotes ________.

Refer to the following figure when answering the next three questions. Figure 11.7: Life Cycle Hypothesis -Consider Figure 11.7 of the life-cycle hypothesis. Area(s) ________ are periods of ________, and area(s) ________ are periods of ________.

Which of the following is an example of an IS shock? i. a change in interest rates ii. a change in tax policy iii. a natural disaster iv. a change in the price of oil

You hear that the Federal Reserve is raising interest rates. From this new information, you conclude that:

Refer to the following table when answering Table 11.1: Real Growth Rates: 1950-2012 Mean St Dev Output 3.26 2.71 Household Consumption 3.37 2.15 Firm Investment 4.60 12.72 Government Expenditures 2.76 6.15 -You are given the data in Table 11.1, which covers the period 1950-2012. "Mean" is the average growth over the period and "St Dev" is the standard deviation of the growth (a measure of volatility) of real output, consumption, investment, and government expenditures. From this information, you conclude that:

According to the permanent-income and life cycle hypotheses, if we wish to smooth consumption over our lifetimes we can:

Defense spending in Afghanistan and Iraq is an example of a negative aggregate demand shock.

Which of the following describes the consumption function in the IS curve?

In the IS curve $\tilde { Y } _ { t } = \bar { a } - \bar { b } \left( R _ { t } - \bar { r } \right) , \bar { a }$ is equal to:

In the IS curve, $\tilde { Y } _ { t }$ represents:

When there is a change to potential output, the IS curve shifts.

An increase in consumer expenditures during the holiday season, a decrease in purchases of U.S. goods by foreigners, a tax increase, and a decline in new home starts are examples of: