Question 1

When the multiplier is included in the IS curve, a change in the real interest rate has a larger impact on short-run fluctuations than with the standard IS curve.

Accepted Answer

A) True 
 B)False  True

Question 2

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

Accepted Answer

A)    
B)    
C)    
D)    
E)    
A)    
B)    
C)    
D)    
E)    B

Question 3

Refer to the following figure when answering the following questions.
Figure 11.5: IS Curve  
-Consider Figure 11.5. If the economy initially is at its long-run equilibrium and the real interest rate decreases, the economy moves from point ________ to point ________.

Accepted Answer

A)  b; a 
B)  d; a 
C)  d; c 
D)  c; d 
E)  d; b 
A)  b; a 
B)  d; a 
C)  d; c 
D)  c; d 
E)  d; b C

Question 4

The implication of Ricardian equivalence is that if the government increases expenditures without increasing taxes, the increase in government expenditures will be:

Accepted Answer

A)  at least partially offset by a reduction in consumer spending. 
B)  enhanced by an increase in consumer spending. 
C)  more than offset by a reduction in firm spending. 
D)  enhanced by the multiplier effect. 
E)  instantly offset by automatic stabilizers. 
A)  at least partially offset by a reduction in consumer spending. 
B)  enhanced by an increase in consumer spending. 
C)  more than offset by a reduction in firm spending. 
D)  enhanced by the multiplier effect. 
E)  instantly offset by automatic stabilizers.

Question 5

The deepest the output gap was during the Great Recession was -7.46 percent in July 2009. Many believe that the multiplier used was 1.5. If this is true, what is   
? What is   
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?

Accepted Answer

The multiplier is derived from the IS co

Question 6

At the peak of the Japanese real estate bubble, the Emperor's Palace in Tokyo had a value:

Accepted Answer

A)  more than profits at GM. 
B)  equal to all the land in the state of California. 
C)  equal to Vietnam's GDP. 
D)  only slightly less than the collective wealth of Steve Jobs and Bill Gates. 
E)  100 yen more than Japan's GDP. 
A)  more than profits at GM. 
B)  equal to all the land in the state of California. 
C)  equal to Vietnam's GDP. 
D)  only slightly less than the collective wealth of Steve Jobs and Bill Gates. 
E)  100 yen more than Japan's GDP.

Question 7

The foundation of the IS curve is the equation ________, which is the ________.

Accepted Answer

A)    ; national income identity 
B)    ; national income identity 
C)    ; national income identity 
D)    ; current account 
E)    ; current account 
A)    ; national income identity 
B)    ; national income identity 
C)    ; national income identity 
D)    ; current account 
E)    ; current account

Question 8

According to Ricardian equivalence, an increase in government expenditure without a proportional tax increase implies that households:

Accepted Answer

A)  expect future tax increases and will reduce spending today. 
B)  expect higher current income and will increase spending today. 
C)  expect future tax decreases and will reduce spending today. 
D)  expect their incomes to remain constant and will hold spending constant. 
E)  do not change their spending patterns. 
A)  expect future tax increases and will reduce spending today. 
B)  expect higher current income and will increase spending today. 
C)  expect future tax decreases and will reduce spending today. 
D)  expect their incomes to remain constant and will hold spending constant. 
E)  do not change their spending patterns.

Question 9

What is the main conclusion of both the permanent-income hypothesis (PIH) and life-cycle model of consumption? Carefully explain.

Accepted Answer

In the PIH model, people base their cons

Question 10

Refer to the following figure when answering the following questions.
Figure 11.4: IS Curve  
-In Figure 11.4, the economy is in its long-run equilibrium at point:

Accepted Answer

A)  b 
B)  a 
C)  c 
D)  d 
E)  Not enough information is given. 
A)  b 
B)  a 
C)  c 
D)  d 
E)  Not enough information is given.

Question 11

Consider the following model of the IS curve without an international sector:
Consumption:  
;
Investment:  
And
Government expenditure:  
With this formulation, the IS curve is:

Accepted Answer

A)  horizontal. 
B)  vertical. 
C)  less steeply sloped than the "standard" IS curve. 
D)  more steeply sloped than the "standard" IS curve. 
E)  Not enough information is given. 
A)  horizontal. 
B)  vertical. 
C)  less steeply sloped than the "standard" IS curve. 
D)  more steeply sloped than the "standard" IS curve. 
E)  Not enough information is given.

Question 12

If a firm borrows a large sum of money, it may engage in particularly risky investments knowing that if the investments succeed, the firm will make lots of money, while if the investments fail, the firm can declare bankruptcy. This is an example of:

Accepted Answer

A)  risk taking. 
B)  adverse selection. 
C)  poor decision making. 
D)  Ricardian equivalency. 
E)  moral hazard. 
A)  risk taking. 
B)  adverse selection. 
C)  poor decision making. 
D)  Ricardian equivalency. 
E)  moral hazard.

Question 13

The fundamental lesson of the life-cycle and permanent-income hypotheses is that:

Accepted Answer

A)  individuals smooth their consumption patterns over their lifetimes. 
B)  individuals vary their consumption patterns over their lifetimes. 
C)  individuals' consumption patterns vary as their incomes change. 
D)  individuals' consumption changes with changes in their temporary incomes. 
E)  taxes are ineffectual. 
A)  individuals smooth their consumption patterns over their lifetimes. 
B)  individuals vary their consumption patterns over their lifetimes. 
C)  individuals' consumption patterns vary as their incomes change. 
D)  individuals' consumption changes with changes in their temporary incomes. 
E)  taxes are ineffectual.

Question 14

Suppose we assume that initially   if  
Rises 2 percent and the real interest rate falls 4 percent, short-run output:

Accepted Answer

A)  rises 2 percent. 
B)  rises 6 percent. 
C)  falls 2 percent. 
D)  rises 4 percent. 
E)  does not change. 
A)  rises 2 percent. 
B)  rises 6 percent. 
C)  falls 2 percent. 
D)  rises 4 percent. 
E)  does not change.

Question 15

The idea that spending today must be paid for someday, if not today, is called the:

Accepted Answer

A)  "no free lunch" principle. 
B)  "Smithian" paradox. 
C)  "no dollar left behind" hypothesis. 
D)  "free rider" problem. 
E)  "countercyclical opposites" thesis. 
A)  "no free lunch" principle. 
B)  "Smithian" paradox. 
C)  "no dollar left behind" hypothesis. 
D)  "free rider" problem. 
E)  "countercyclical opposites" thesis.

Question 16

If all the economies of the European Union experience a recession, the United States experiences ________ and the IS curve ________.

Accepted Answer

A)  no change; stays constant 
B)  a positive aggregate demand shock; shifts right 
C)  a negative aggregate demand shock; shifts left 
D)  no change; shifts right 
E)  Not enough information is given. 
A)  no change; stays constant 
B)  a positive aggregate demand shock; shifts right 
C)  a negative aggregate demand shock; shifts left 
D)  no change; shifts right 
E)  Not enough information is given.

Question 17

When the real interest rate rises, there is leftward movement along the IS curve.

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

A)  i 
B)  ii 
C)  iii 
D)  iv 
E)  i and ii 
A)  i 
B)  ii 
C)  iii 
D)  iv 
E)  i and ii

Question 19

Suppose   ,  
,  
,  
, and  
) For any given  
Equals ________ and the economy ________.

Accepted Answer

A)  0; is in its long-run equilibrium 
B)  0.05; has experienced a positive aggregate demand shock 
C)  1.05; has experienced a positive aggregate demand shock 
D)  0.45; has experienced a positive aggregate demand shock 
E)  -0.15; has experienced a negative aggregate demand shock 
A)  0; is in its long-run equilibrium 
B)  0.05; has experienced a positive aggregate demand shock 
C)  1.05; has experienced a positive aggregate demand shock 
D)  0.45; has experienced a positive aggregate demand shock 
E)  -0.15; has experienced a negative aggregate demand shock

Question 20

In the equation   , if  
Is close to zero, investment:

Accepted Answer

A)  is not very sensitive to real interest rate changes. 
B)  is very sensitive to changes in the marginal product of capital. 
C)  is very sensitive to real interest rate changes. 
D)  is sensitive to tax rate changes. 
E)  does not depend upon the real interest rate. 
A)  is not very sensitive to real interest rate changes. 
B)  is very sensitive to changes in the marginal product of capital. 
C)  is very sensitive to real interest rate changes. 
D)  is sensitive to tax rate changes. 
E)  does not depend upon the real interest rate.

When the multiplier is included in the IS curve, a change in the real interest rate has a larger impact on short-run fluctuations than with the standard IS curve.

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

Refer to the following figure when answering the following questions. Figure 11.5: IS Curve -Consider Figure 11.5. If the economy initially is at its long-run equilibrium and the real interest rate decreases, the economy moves from point to point .

The implication of Ricardian equivalence is that if the government increases expenditures without increasing taxes, the increase in government expenditures will be:

At the peak of the Japanese real estate bubble, the Emperor's Palace in Tokyo had a value:

The foundation of the IS curve is the equation , which is the .

According to Ricardian equivalence, an increase in government expenditure without a proportional tax increase implies that households:

What is the main conclusion of both the permanent-income hypothesis (PIH) and life-cycle model of consumption? Carefully explain.

Refer to the following figure when answering the following questions. Figure 11.4: IS Curve -In Figure 11.4, the economy is in its long-run equilibrium at point:

Consider the following model of the IS curve without an international sector: Consumption: ; Investment: And Government expenditure: With this formulation, the IS curve is:

If a firm borrows a large sum of money, it may engage in particularly risky investments knowing that if the investments succeed, the firm will make lots of money, while if the investments fail, the firm can declare bankruptcy. This is an example of:

The fundamental lesson of the life-cycle and permanent-income hypotheses is that:

Suppose we assume that initially if Rises 2 percent and the real interest rate falls 4 percent, short-run output:

The idea that spending today must be paid for someday, if not today, is called the:

If all the economies of the European Union experience a recession, the United States experiences and the IS curve .

When the real interest rate rises, there is leftward movement along the IS curve.

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

Suppose , , , , and ) For any given Equals and the economy .

In the equation , if Is close to zero, investment:

Introduction to Macroeconomics

Measuring the Macroeconomy

An Overview of Long-Run Economic Growth

A Model of Production

The Solow Growth Model

Growth and Ideas

The Labor Market, Wages, and Unemployment

Inflation

An Introduction to the Short Run

The Great Recession: a First Look

Monetary Policy and the Phillips Curve

Stabilization Policy and the Asad Framework

The Great Recession and the Short-Run Model

Dsge Models: the Frontier of Business Cycle Research

Consumption

Investment

The Government and the Macroeconomy

International Trade

Exchange Rates and International Finance

Parting Thoughts

Filters

Exam 11: The Is Curve

When the multiplier is included in the IS curve, a change in the real interest rate has a larger impact on short-run fluctuations than with the standard IS curve.

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

Refer to the following figure when answering the following questions. Figure 11.5: IS Curve -Consider Figure 11.5. If the economy initially is at its long-run equilibrium and the real interest rate decreases, the economy moves from point ________ to point ________.

The implication of Ricardian equivalence is that if the government increases expenditures without increasing taxes, the increase in government expenditures will be:

At the peak of the Japanese real estate bubble, the Emperor's Palace in Tokyo had a value:

The foundation of the IS curve is the equation ________, which is the ________.

According to Ricardian equivalence, an increase in government expenditure without a proportional tax increase implies that households:

What is the main conclusion of both the permanent-income hypothesis (PIH) and life-cycle model of consumption? Carefully explain.

Refer to the following figure when answering the following questions. Figure 11.4: IS Curve -In Figure 11.4, the economy is in its long-run equilibrium at point:

Consider the following model of the IS curve without an international sector: Consumption: ; Investment: And Government expenditure: With this formulation, the IS curve is:

If a firm borrows a large sum of money, it may engage in particularly risky investments knowing that if the investments succeed, the firm will make lots of money, while if the investments fail, the firm can declare bankruptcy. This is an example of:

The fundamental lesson of the life-cycle and permanent-income hypotheses is that:

Suppose we assume that initially if Rises 2 percent and the real interest rate falls 4 percent, short-run output:

The idea that spending today must be paid for someday, if not today, is called the:

If all the economies of the European Union experience a recession, the United States experiences ________ and the IS curve ________.

When the real interest rate rises, there is leftward movement along the IS curve.

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

Suppose , , , , and ) For any given Equals ________ and the economy ________.

In the equation , if Is close to zero, investment:

Introduction to Macroeconomics

Measuring the Macroeconomy

An Overview of Long-Run Economic Growth

A Model of Production

The Solow Growth Model

Growth and Ideas

The Labor Market, Wages, and Unemployment

Inflation

An Introduction to the Short Run

The Great Recession: a First Look

Monetary Policy and the Phillips Curve

Stabilization Policy and the Asad Framework

The Great Recession and the Short-Run Model

Dsge Models: the Frontier of Business Cycle Research

Consumption

Investment

The Government and the Macroeconomy

International Trade

Exchange Rates and International Finance

Parting Thoughts

Filters

Refer to the following figure when answering the following questions. Figure 11.5: IS Curve -Consider Figure 11.5. If the economy initially is at its long-run equilibrium and the real interest rate decreases, the economy moves from point to point .

The foundation of the IS curve is the equation , which is the .

If all the economies of the European Union experience a recession, the United States experiences and the IS curve .

Suppose , , , , and ) For any given Equals and the economy .