Question 1

In the equation   , if  
Is close to infinity:

Accepted Answer

A)  investment is extremely sensitive to real interest rate changes. 
B)  investment is somewhat sensitive to changes in the marginal product of capital. 
C)  investment is not very sensitive to real interest rate changes. 
D)  investment is sensitive to tax rate changes. 
E)  the output gap is zero. 
A)  investment is extremely sensitive to real interest rate changes. 
B)  investment is somewhat sensitive to changes in the marginal product of capital. 
C)  investment is not very sensitive to real interest rate changes. 
D)  investment is sensitive to tax rate changes. 
E)  the output gap is zero.

Question 2

According to the life-cycle and permanent-income hypotheses, if future income rises permanently, current consumption:

Accepted Answer

A)  falls. 
B)  rises. 
C)  does not change. 
D)  changes in proportion to interest rate changes. 
E)  Not enough information is given. 
A)  falls. 
B)  rises. 
C)  does not change. 
D)  changes in proportion to interest rate changes. 
E)  Not enough information is given.

Question 3

Refer to the following figure when answering the following questions.
Figure 11.6: IS Curve  
-Consider the IS curve in Figure 11.6. Holding the real interest rate constant, beginning at point e, if there is an aggregate demand shock:

Accepted Answer

A)  the IS curve shifts right to point c. 
B)  the IS curve shifts right to point a. 
C)  the IS curve shifts left to point g. 
D)  there is a movement along the IS curve to point d. 
E)  Not enough information is given. 
A)  the IS curve shifts right to point c. 
B)  the IS curve shifts right to point a. 
C)  the IS curve shifts left to point g. 
D)  there is a movement along the IS curve to point d. 
E)  Not enough information is given.

Question 4

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

Accepted Answer

Begin with Y = C +I + G + EX-IM and do s

Question 5

Consider the following model of the IS curve without an international sector:
Consumption:   
Investment:   
and
Government expenditure:   
With this formulation, the IS curve is less steeply sloped than the "standard" IS curve.

Accepted Answer

A) True 
 B)False

Question 6

U.S. government spending on goods and services does NOT include:

Accepted Answer

A)  defense spending. 
B)  building highways. 
C)  spending on education. 
D)  transfer payments. 
E)  All of these answers are correct. 
A)  defense spending. 
B)  building highways. 
C)  spending on education. 
D)  transfer payments. 
E)  All of these answers are correct.

Question 7

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

Accepted Answer

A)  A; dissaving; C; saving 
B)  C; dissaving; B; saving 
C)  B; dissaving; A and C; saving 
D)  A and C; dissaving; B; saving 
E)  Not enough information is given. 
A)  A; dissaving; C; saving 
B)  C; dissaving; B; saving 
C)  B; dissaving; A and C; saving 
D)  A and C; dissaving; B; saving 
E)  Not enough information is given.

Question 8

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

Accepted Answer

A)  a shift in the aggregate supply curve. 
B)  a leftward shift of the IS curve. 
C)  a decline in inflation expectations. 
D)  a rightward movement along the IS curve. 
E)  rising nominal interest rates. 
A)  a shift in the aggregate supply curve. 
B)  a leftward shift of the IS curve. 
C)  a decline in inflation expectations. 
D)  a rightward movement along the IS curve. 
E)  rising nominal interest rates.

Question 9

Using the IS curve   , in the long run,  
________ and ________, so that  
________.

Accepted Answer

A)  equals one;   ; equals zero 
B)  is greater than one;   ; is greater than zero 
C)  equals zero;   ; equals zero 
D)  equals one;   ; equals zero 
E)  equals one;   ; equals one 
A)  equals one;   ; equals zero 
B)  is greater than one;   ; is greater than zero 
C)  equals zero;   ; equals zero 
D)  equals one;   ; equals zero 
E)  equals one;   ; equals one

Question 10

Refer to the following figure when answering the following questions.
Figure 11.3: IS Curve  
-Consider Figure 11.3. If investment is infinitely interest rate sensitive, the economy would be characterized by:

Accepted Answer

A)  IS1. 
B)  IS3. 
C)  IS2. 
D)  IS4. 
E)  Not enough information is given. 
A)  IS1. 
B)  IS3. 
C)  IS2. 
D)  IS4. 
E)  Not enough information is given.

Question 11

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

Accepted Answer

A)  A; borrowing; B; dissaving 
B)  A; saving; B; borrowing 
C)  B; dissaving; A and C; borrowing 
D)  A and C; dissaving; B; borrowing 
E)  None of these answers is correct. 
A)  A; borrowing; B; dissaving 
B)  A; saving; B; borrowing 
C)  B; dissaving; A and C; borrowing 
D)  A and C; dissaving; B; borrowing 
E)  None of these answers is correct.

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

The IS curve describes the ________ relationship between ________ and ________.

Accepted Answer

A)  negative; tax rate; investment 
B)  positive; interest rate; output 
C)  positive; tax rate; government expenditure 
D)  negative; interest rate; output 
E)  negative; interest rate; money supply 
A)  negative; tax rate; investment 
B)  positive; interest rate; output 
C)  positive; tax rate; government expenditure 
D)  negative; interest rate; output 
E)  negative; interest rate; money supply

Question 14

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

Accepted Answer

A) True 
 B)False

Question 15

A key assumption of Ricardian equivalence is:

Accepted Answer

A)  the permanent-income hypothesis. 
B)  the life-cycle hypothesis. 
C)  adaptive expectations. 
D)  independent monetary policy. 
E)  None of these answers is correct. 
A)  the permanent-income hypothesis. 
B)  the life-cycle hypothesis. 
C)  adaptive expectations. 
D)  independent monetary policy. 
E)  None of these answers is correct.

Question 16

In the long run, the:

Accepted Answer

A)  federal funds rate equals the 10-year bond rate. 
B)  marginal product of capital is greater than the real interest rate. 
C)  marginal product of capital equals the nominal interest rate. 
D)  marginal product of capital equals the real interest rate. 
E)  marginal product of capital is less than the real interest rate. 
A)  federal funds rate equals the 10-year bond rate. 
B)  marginal product of capital is greater than the real interest rate. 
C)  marginal product of capital equals the nominal interest rate. 
D)  marginal product of capital equals the real interest rate. 
E)  marginal product of capital is less than the real interest rate.

Question 17

In the long run,   
and   
.

Accepted Answer

A) True 
 B)False

Question 18

During a recession, increases in unemployment insurance, welfare, and Medicaid payments are called:

Accepted Answer

A)  social security. 
B)  transfer payments. 
C)  automatic stabilizers. 
D)  charity. 
E)  both "transfer payments" and "automatic stabilizers." 
A)  social security. 
B)  transfer payments. 
C)  automatic stabilizers. 
D)  charity. 
E)  both "transfer payments" and "automatic stabilizers."

Question 19

Consider Figure 11.8 below, which shows the output gap and the NASDAQ stock market index from 1995-2001. NASDAQ has a lot of "tech" firms that drove the rise in the stock market index in the late 1990s, as shown. As one can see, the output gap also rose to about 2.8 percent in April 2000. Explain this graph using the IS curve.Figure 11.8: Output Gap and NASDQ Index

Accepted Answer

This question can be answered two ways:

Question 20

The foundation of the IS curve is the national income identity given by the equation   
.

Accepted Answer

A) True 
 B)False

In the equation , if Is close to infinity:

According to the life-cycle and permanent-income hypotheses, if future income rises permanently, current consumption:

Refer to the following figure when answering the following questions. Figure 11.6: IS Curve -Consider the IS curve in Figure 11.6. Holding the real interest rate constant, beginning at point e, if there is an aggregate demand shock:

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

Consider the following model of the IS curve without an international sector: Consumption: Investment: and Government expenditure: With this formulation, the IS curve is less steeply sloped than the "standard" IS curve.

U.S. government spending on goods and services does NOT include:

Refer to the following figure when answering the following questions. Figure 11.7: Life Cycle Hypothesis -Consider Figure 11.7 of the life-cycle hypothesis. Area(s) is/are (a) period(s) of , and area(s) is/are (a) period(s) of .

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

Using the IS curve , in the long run, and , so that .

Refer to the following figure when answering the following questions. Figure 11.3: IS Curve -Consider Figure 11.3. If investment is infinitely interest rate sensitive, the economy would be characterized by:

Refer to the following figure when answering the following questions. Figure 11.7: Life Cycle Hypothesis -Consider Figure 11.7 of the life-cycle hypothesis. Area(s) is/are (a) period(s) of , and area(s) is/are (a) period(s) of .

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

The IS curve describes the relationship between and .

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

A key assumption of Ricardian equivalence is:

In the long run, the:

In the long run, and .

During a recession, increases in unemployment insurance, welfare, and Medicaid payments are called:

The foundation of the IS curve is the national income identity given by the equation .

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

In the equation , if Is close to infinity:

According to the life-cycle and permanent-income hypotheses, if future income rises permanently, current consumption:

Refer to the following figure when answering the following questions. Figure 11.6: IS Curve -Consider the IS curve in Figure 11.6. Holding the real interest rate constant, beginning at point e, if there is an aggregate demand shock:

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

Consider the following model of the IS curve without an international sector: Consumption: Investment: and Government expenditure: With this formulation, the IS curve is less steeply sloped than the "standard" IS curve.

U.S. government spending on goods and services does NOT include:

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

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

Using the IS curve , in the long run, ________ and ________, so that ________.

Refer to the following figure when answering the following questions. Figure 11.3: IS Curve -Consider Figure 11.3. If investment is infinitely interest rate sensitive, the economy would be characterized by:

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

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

The IS curve describes the ________ relationship between ________ and ________.

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

A key assumption of Ricardian equivalence is:

In the long run, the:

In the long run, and .

During a recession, increases in unemployment insurance, welfare, and Medicaid payments are called:

The foundation of the IS curve is the national income identity given by the equation .

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 11.7: Life Cycle Hypothesis -Consider Figure 11.7 of the life-cycle hypothesis. Area(s) is/are (a) period(s) of , and area(s) is/are (a) period(s) of .

Using the IS curve , in the long run, and , so that .

Refer to the following figure when answering the following questions. Figure 11.7: Life Cycle Hypothesis -Consider Figure 11.7 of the life-cycle hypothesis. Area(s) is/are (a) period(s) of , and area(s) is/are (a) period(s) of .

The IS curve describes the relationship between and .