Question 1

In the equation   , the left-hand side is called:

Accepted Answer

A)  investment. 
B)  private saving. 
C)  total saving. 
D)  government debt. 
E)  public saving. 
A)  investment. 
B)  private saving. 
C)  total saving. 
D)  government debt. 
E)  public saving.

Question 2

According to the IS curve, when interest rates rise, ________ and ________.

Accepted Answer

A)  governments borrow less; firms produce less 
B)  firms and households borrow more; firms produce less 
C)  firms and households borrow less; firms produce less 
D)  firms and households borrow more; firms produce more 
E)  firms and households borrow more; governments produce more 
A)  governments borrow less; firms produce less 
B)  firms and households borrow more; firms produce less 
C)  firms and households borrow less; firms produce less 
D)  firms and households borrow more; firms produce more 
E)  firms and households borrow more; governments produce more

Question 3

When the multiplier is included in the IS curve:

Accepted Answer

A)  a demand shock has a larger impact on short-run fluctuations than with the standard IS curve. 
B)  it has no impact on potential output. 
C)  a demand shock has a smaller impact on short-run fluctuations than with the standard IS curve. 
D)  a change in taxes has no impact on short-run output. 
E)  None of these answers is correct. 
A)  a demand shock has a larger impact on short-run fluctuations than with the standard IS curve. 
B)  it has no impact on potential output. 
C)  a demand shock has a smaller impact on short-run fluctuations than with the standard IS curve. 
D)  a change in taxes has no impact on short-run output. 
E)  None of these answers is correct.

Question 4

In the long run, the marginal product of capital is greater than the real interest rate.

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

A)  setting consumption proportional to potential output. 
B)  keeping consumption growth zero. 
C)  setting consumption proportional to the real interest rate. 
D)  setting consumption equal to past income. 
E)  incorporating the interest rate. 
A)  setting consumption proportional to potential output. 
B)  keeping consumption growth zero. 
C)  setting consumption proportional to the real interest rate. 
D)  setting consumption equal to past income. 
E)  incorporating the interest rate.

Question 6

Refer to the following figure when answering the following questions.
Figure 11.1: Growth rates of real investment and consumption   (Source: U.S. Bureau of Economic Analysis)
-Consider Figure 11.1. What explains the difference in the volatility of each series?

Accepted Answer

A)  Firms are predictable. 
B)  differences in expectations across firms 
C)  differences in expenditure shares 
D)  Firms do not make investment decisions based on interest rates. 
E)  Households consumption-smooth. 
A)  Firms are predictable. 
B)  differences in expectations across firms 
C)  differences in expenditure shares 
D)  Firms do not make investment decisions based on interest rates. 
E)  Households consumption-smooth.

Question 7

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

Accepted Answer

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

Question 8

In the long run, if the marginal product of capital equals the real interest rate, investment is given by:

Accepted Answer

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

Question 9

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

Accepted Answer

There is an inverse

Question 10

Every six to eight weeks, or so, the Federal Reserve meets to set the ________ rate.

Accepted Answer

A)  discount 
B)  mortgage 
C)  federal funds 
D)  10-year bond 
E)  tax 
A)  discount 
B)  mortgage 
C)  federal funds 
D)  10-year bond 
E)  tax

Question 11

The life-cycle hypothesis suggests that people base their consumption on their ________ incomes.

Accepted Answer

A)  current 
B)  average lifetime incomes rather than their current 
C)  temporary 
D)  future 
E)  past 
A)  current 
B)  average lifetime incomes rather than their current 
C)  temporary 
D)  future 
E)  past

Question 12

According to the discussion of the Japanese economy, how did the Japanese government fight the recession and slowdown, which began in about 1990? Was the policy successful? What might be reasons for the policy's success or failure?

Accepted Answer

The answer is best discussed using the I

Question 13

If we write the consumption function as   , if 
 
, the IS curve is given by:

Accepted Answer

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

Question 14

What should the long-run effect of the temporary tax cuts implemented in George H. Bush's presidency be according to Ricardian equivalence?

Accepted Answer

This is based on the permanent-income hy

Question 15

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

Accepted Answer

A)  falls 2 percent. 
B)  rises 1 percent. 
C)  rises 3 percent. 
D)  falls 1 percent. 
E)  does not change. 
A)  falls 2 percent. 
B)  rises 1 percent. 
C)  rises 3 percent. 
D)  falls 1 percent. 
E)  does not change.

Question 16

The IS curve describes short-run movements in an economy via which of the following?

Accepted Answer

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

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

Refer to the following table when answering the following questions.
Table 11.1: Real Growth Rates: 1970-2015  
-You are given the data in Table 11.1, which covers the period 1970-2015. "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:

Accepted Answer

A)  households base their consumption on permanent income. 
B)  households do not consumption-smooth. 
C)  firms rely solely on "animal spirits" when considering new investment. 
D)  government expenditures are always greater than household expenditures. 
E)  households base their consumption patterns on interest rates only. 
A)  households base their consumption on permanent income. 
B)  households do not consumption-smooth. 
C)  firms rely solely on "animal spirits" when considering new investment. 
D)  government expenditures are always greater than household expenditures. 
E)  households base their consumption patterns on interest rates only.

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

The investment function is proportional to potential output only.

Accepted Answer

A) True 
 B)False

In the equation , the left-hand side is called:

According to the IS curve, when interest rates rise, and .

When the multiplier is included in the IS curve:

In the long run, the marginal product of capital is greater than the real interest rate.

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

Refer to the following figure when answering the following questions. Figure 11.1: Growth rates of real investment and consumption (Source: U.S. Bureau of Economic Analysis) -Consider Figure 11.1. What explains the difference in the volatility of each series?

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

In the long run, if the marginal product of capital equals the real interest rate, investment is given by:

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

Every six to eight weeks, or so, the Federal Reserve meets to set the ________ rate.

The life-cycle hypothesis suggests that people base their consumption on their ________ incomes.

According to the discussion of the Japanese economy, how did the Japanese government fight the recession and slowdown, which began in about 1990? Was the policy successful? What might be reasons for the policy's success or failure?

If we write the consumption function as , if , the IS curve is given by:

What should the long-run effect of the temporary tax cuts implemented in George H. Bush's presidency be according to Ricardian equivalence?

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

The IS curve describes short-run movements in an economy via which of the following?

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

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

The investment function is proportional to potential output only.

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 , the left-hand side is called:

According to the IS curve, when interest rates rise, ________ and ________.

When the multiplier is included in the IS curve:

In the long run, the marginal product of capital is greater than the real interest rate.

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

Refer to the following figure when answering the following questions. Figure 11.1: Growth rates of real investment and consumption (Source: U.S. Bureau of Economic Analysis) -Consider Figure 11.1. What explains the difference in the volatility of each series?

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

In the long run, if the marginal product of capital equals the real interest rate, investment is given by:

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

Every six to eight weeks, or so, the Federal Reserve meets to set the ________ rate.

The life-cycle hypothesis suggests that people base their consumption on their ________ incomes.

According to the discussion of the Japanese economy, how did the Japanese government fight the recession and slowdown, which began in about 1990? Was the policy successful? What might be reasons for the policy's success or failure?

If we write the consumption function as , if , the IS curve is given by:

What should the long-run effect of the temporary tax cuts implemented in George H. Bush's presidency be according to Ricardian equivalence?

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

The IS curve describes short-run movements in an economy via which of the following?

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

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

The investment function is proportional to potential output only.

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

According to the IS curve, when interest rates rise, and .