Question 1

All of the following may have contributed to the financial crisis and economic downturn of 2008-2009 except:

Accepted Answer

A)  high inflation. 
B)  low interest rates. 
C)  stock market volatility. 
D)  falling house prices. 
A)  high inflation. 
B)  low interest rates. 
C)  stock market volatility. 
D)  falling house prices.

Question 2

Use the IS-LM model to illustrate graphically the impact on output and interest rates of a one-time increase in the price level due to a large increase in oil prices. Be sure to label: i. the axes; ii. the curves; iii. the initial equilibrium values; iv. the direction the curves shift; and v. the terminal equilibrium values.

Accepted Answer

The answer of Use the IS-LM model to illustrate graphically...

Question 3

In the IS-LM model, a decrease in the interest rate would be the result of a(n):

Accepted Answer

A)  increase in the money supply. 
B)  increase in government purchases. 
C)  decrease in taxes. 
D)  increase in money demand. 
A)  increase in the money supply. 
B)  increase in government purchases. 
C)  decrease in taxes. 
D)  increase in money demand.

Question 4

If the congress announces a rise in taxes, how will the Fed react to this rise, according to the IS-LM model?

Accepted Answer

According to IS-LM model, there can be t

Question 5

An increase in government spending raises income:

Accepted Answer

A)  and the interest rate in the short run, but leaves both unchanged in the long run. 
B)  in the short run, but leaves it unchanged in the long run, while lowering investment. 
C)  in the short run, but leaves it unchanged in the long run, while lowering consumption. 
D)  and the interest rate in both the short and long runs. 
A)  and the interest rate in the short run, but leaves both unchanged in the long run. 
B)  in the short run, but leaves it unchanged in the long run, while lowering investment. 
C)  in the short run, but leaves it unchanged in the long run, while lowering consumption. 
D)  and the interest rate in both the short and long runs.

Question 6

In the IS-LM model when M rises but P remains constant, in short-run equilibrium, in the usual case the interest rate ______ and output ______.

Accepted Answer

A)  rises; falls 
B)  rises; rises 
C)  falls; rises 
D)  falls; falls 
A)  rises; falls 
B)  rises; rises 
C)  falls; rises 
D)  falls; falls

Question 7

The debt-deflation theory of the Great Depression suggests that an ______ deflation redistributes wealth in such a way as to ______ spending on goods and services.

Accepted Answer

A)  unexpected; reduce 
B)  unexpected; increase 
C)  expected; reduce 
D)  expected; increase 
A)  unexpected; reduce 
B)  unexpected; increase 
C)  expected; reduce 
D)  expected; increase

Question 8

The monetary transmission mechanism in the IS-LM model is a process whereby an increase in the money supply increases the demand for goods and services:

Accepted Answer

A)  directly. 
B)  by lowering the interest rate so that investment spending increases. 
C)  by raising the interest rate so that investment spending increases. 
D)  by increasing government spending on goods and services. 
A)  directly. 
B)  by lowering the interest rate so that investment spending increases. 
C)  by raising the interest rate so that investment spending increases. 
D)  by increasing government spending on goods and services.

Question 9

In the IS-LM model when government spending rises, in short-run equilibrium, in the usual case the interest rate ______ and output ______.

Accepted Answer

A)  rises; falls 
B)  rises; rises 
C)  falls; rises 
D)  falls; falls 
A)  rises; falls 
B)  rises; rises 
C)  falls; rises 
D)  falls; falls

Question 10

If money demand is infinite below some certain r (e.g., r*) and zero above r*, then the LM curve is ______ and ______ policy has no effect on output.

Accepted Answer

A)  vertical; fiscal 
B)  horizontal; fiscal 
C)  vertical; monetary 
D)  horizontal; monetary 
A)  vertical; fiscal 
B)  horizontal; fiscal 
C)  vertical; monetary 
D)  horizontal; monetary

Question 11

Using the IS-LM analysis, if the LM curve is not horizontal, the multiplier for an increase in government spending is ______ for an increase in government purchases using the Keynesian-cross analysis.

Accepted Answer

A)  larger than the multiplier 
B)  the same as the multiplier 
C)  smaller than the multiplier 
D)  sometimes larger and sometimes smaller than the multiplier 
A)  larger than the multiplier 
B)  the same as the multiplier 
C)  smaller than the multiplier 
D)  sometimes larger and sometimes smaller than the multiplier

Question 12

Use the following to answer questions :
Exhibit: IS-LM Monetary Policy  
-(Exhibit: IS-LM Monetary Policy) Based on the graph, starting from equilibrium at interest rate r1 and income Y1, an increase in the money supply would generate the new equilibrium combination of interest rate and income:

Accepted Answer

A)  r2, Y2 
B)  r3, Y2 
C)  r2, Y3 
D)  r3, Y3 
A)  r2, Y2 
B)  r3, Y2 
C)  r2, Y3 
D)  r3, Y3

Question 13

An increase in the money supply:

Accepted Answer

A)  increases income and lowers the interest rate in both the short and long runs. 
B)  increases income in both the short and long runs, but leaves the interest rate unchanged in the long run. 
C)  lowers the interest rate in both the short and long runs, but leaves income unchanged in the long run. 
D)  lowers the interest rate and increases income in the short run, but leaves both unchanged in the long run. 
A)  increases income and lowers the interest rate in both the short and long runs. 
B)  increases income in both the short and long runs, but leaves the interest rate unchanged in the long run. 
C)  lowers the interest rate in both the short and long runs, but leaves income unchanged in the long run. 
D)  lowers the interest rate and increases income in the short run, but leaves both unchanged in the long run.

Question 14

Assume the economy is initially in a short-run equilibrium at a level of output below the natural rate. a. Use the $I S - L M$ model to graphically illustrate: (1) how the economy will adjust in the longrun if the no policy action is taken; and (2) the long-run equilibrium if fiscal policy is used to return the economy to the natural rate of output.
b. Explain how investment, the interest rate, and the price level differ in the new long-run equilibrium in the two cases.

Accepted Answer

@#IMG-DLM& a. The economy starts in equilibrium at

Question 15

A change in money supply shifts the LM curve downward. Explain why.

Accepted Answer

An increase in money supply (M) leads to

Question 16

If the short-run IS-LM equilibrium occurs at a level of income below the natural level of output, then in the long run the price level will ______, shifting the ______ curve to the right and returning output to the natural level.

Accepted Answer

A)  increase; IS 
B)  decrease; IS 
C)  increase; LM 
D)  decrease; LM 
A)  increase; IS 
B)  decrease; IS 
C)  increase; LM 
D)  decrease; LM

Question 17

In the IS-LM model when the Federal Reserve decreases the money supply, people ______ bonds and the interest rate ______, leading to a(n) ______ in investment and income.

Accepted Answer

A)  buy; rises; increase 
B)  sell; falls; decrease 
C)  sell; rises; decrease 
D)  buy; rises; decrease 
A)  buy; rises; increase 
B)  sell; falls; decrease 
C)  sell; rises; decrease 
D)  buy; rises; decrease

Question 18

If consumption is given by C = 200 + 0.75(Y - T) and investment is given by I = 200 - 25r, then the formula for the IS curve is:

Accepted Answer

A)  Y = 400 - 0.75T - 25r + G. 
B)  Y = 1,600 - 3T - 100r + 4G. 
C)  Y = 400 + 0.75T - 25r - G. 
D)  Y = 1,600 + 3T - 100r - 4G. 
A)  Y = 400 - 0.75T - 25r + G. 
B)  Y = 1,600 - 3T - 100r + 4G. 
C)  Y = 400 + 0.75T - 25r - G. 
D)  Y = 1,600 + 3T - 100r - 4G.

Question 19

All of the following events are consistent with the spending hypothesis as contributing to the Great Depression except:

Accepted Answer

A)  the decline in investment spending on housing because of a decline in immigration in the 1930s. 
B)  the decline in consumption spending caused by the stock market crash of 1929. 
C)  fiscal policy to reduce the budget deficit by raising taxes in 1932. 
D)  the 25-percent reduction in the money supply between 1929 and 1933. 
A)  the decline in investment spending on housing because of a decline in immigration in the 1930s. 
B)  the decline in consumption spending caused by the stock market crash of 1929. 
C)  fiscal policy to reduce the budget deficit by raising taxes in 1932. 
D)  the 25-percent reduction in the money supply between 1929 and 1933.

Question 20

In the IS-LM model, a decrease in output would be the result of a(n):

Accepted Answer

A)  decrease in taxes. 
B)  increase in the money supply. 
C)  increase in money demand. 
D)  increase in government purchases. 
A)  decrease in taxes. 
B)  increase in the money supply. 
C)  increase in money demand. 
D)  increase in government purchases.

All of the following may have contributed to the financial crisis and economic downturn of 2008-2009 except:

In the IS-LM model, a decrease in the interest rate would be the result of a(n):

If the congress announces a rise in taxes, how will the Fed react to this rise, according to the IS-LM model?

An increase in government spending raises income:

In the IS-LM model when M rises but P remains constant, in short-run equilibrium, in the usual case the interest rate and output .

The debt-deflation theory of the Great Depression suggests that an deflation redistributes wealth in such a way as to spending on goods and services.

The monetary transmission mechanism in the IS-LM model is a process whereby an increase in the money supply increases the demand for goods and services:

In the IS-LM model when government spending rises, in short-run equilibrium, in the usual case the interest rate and output .

If money demand is infinite below some certain r (e.g., r) and zero above r, then the LM curve is and policy has no effect on output.

Using the IS-LM analysis, if the LM curve is not horizontal, the multiplier for an increase in government spending is ______ for an increase in government purchases using the Keynesian-cross analysis.

Use the following to answer questions : Exhibit: IS-LM Monetary Policy -(Exhibit: IS-LM Monetary Policy) Based on the graph, starting from equilibrium at interest rate r₁ and income Y₁, an increase in the money supply would generate the new equilibrium combination of interest rate and income:

An increase in the money supply:

A change in money supply shifts the LM curve downward. Explain why.

If the short-run IS-LM equilibrium occurs at a level of income below the natural level of output, then in the long run the price level will , shifting the curve to the right and returning output to the natural level.

In the IS-LM model when the Federal Reserve decreases the money supply, people bonds and the interest rate , leading to a(n) __ in investment and income.

If consumption is given by C = 200 + 0.75(Y - T) and investment is given by I = 200 - 25r, then the formula for the IS curve is:

All of the following events are consistent with the spending hypothesis as contributing to the Great Depression except:

In the IS-LM model, a decrease in output would be the result of a(n):

The Science of Macroeconomics

The Data of Macroeconomics

National Income: Where It Comes From and Where It Goes

The Monetary System: What It Is and How It Works

Inflation: Its Causes, Effects, and Social Costs

The Open Economy

Unemployment and the Labor Market

Economic Growth I: Capital Accumulation and Population Growth

Economic Growth II: Technology, Empirics, and Policy

Introduction to Economic Fluctuations

Aggregate Demand I: Building the Is-Lm Model

The Open Economy Revisited: the Mundell-Fleming Model and the Exchange-Rate Regime

Aggregate Supply and the Short-Run Tradeoff Between Inflation and Unemployment

A Dynamic Model of Economic Fluctuations

Understanding Consumer Behavior

The Theory of Investment

Alternative Perspectives on Stabilization Policy

Government Debt and Budget Deficits

The Financial System: Opportunities and Dangers

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Exam 12: Aggregate Demand Ii: Applying the Is-Lm Model

All of the following may have contributed to the financial crisis and economic downturn of 2008-2009 except:

In the IS-LM model, a decrease in the interest rate would be the result of a(n):

If the congress announces a rise in taxes, how will the Fed react to this rise, according to the IS-LM model?

An increase in government spending raises income:

In the IS-LM model when M rises but P remains constant, in short-run equilibrium, in the usual case the interest rate ______ and output ______.

The debt-deflation theory of the Great Depression suggests that an ______ deflation redistributes wealth in such a way as to ______ spending on goods and services.

The monetary transmission mechanism in the IS-LM model is a process whereby an increase in the money supply increases the demand for goods and services:

In the IS-LM model when government spending rises, in short-run equilibrium, in the usual case the interest rate ______ and output ______.

If money demand is infinite below some certain r (e.g., r*) and zero above r*, then the LM curve is ______ and ______ policy has no effect on output.

Using the IS-LM analysis, if the LM curve is not horizontal, the multiplier for an increase in government spending is ______ for an increase in government purchases using the Keynesian-cross analysis.

Use the following to answer questions : Exhibit: IS-LM Monetary Policy -(Exhibit: IS-LM Monetary Policy) Based on the graph, starting from equilibrium at interest rate r1 and income Y1, an increase in the money supply would generate the new equilibrium combination of interest rate and income:

An increase in the money supply:

A change in money supply shifts the LM curve downward. Explain why.

If the short-run IS-LM equilibrium occurs at a level of income below the natural level of output, then in the long run the price level will ______, shifting the ______ curve to the right and returning output to the natural level.

In the IS-LM model when the Federal Reserve decreases the money supply, people ______ bonds and the interest rate ______, leading to a(n) ______ in investment and income.

If consumption is given by C = 200 + 0.75(Y - T) and investment is given by I = 200 - 25r, then the formula for the IS curve is:

All of the following events are consistent with the spending hypothesis as contributing to the Great Depression except:

In the IS-LM model, a decrease in output would be the result of a(n):

The Science of Macroeconomics

The Data of Macroeconomics

National Income: Where It Comes From and Where It Goes

The Monetary System: What It Is and How It Works

Inflation: Its Causes, Effects, and Social Costs

The Open Economy

Unemployment and the Labor Market

Economic Growth I: Capital Accumulation and Population Growth

Economic Growth II: Technology, Empirics, and Policy

Introduction to Economic Fluctuations

Aggregate Demand I: Building the Is-Lm Model

The Open Economy Revisited: the Mundell-Fleming Model and the Exchange-Rate Regime

Aggregate Supply and the Short-Run Tradeoff Between Inflation and Unemployment

A Dynamic Model of Economic Fluctuations

Understanding Consumer Behavior

The Theory of Investment

Alternative Perspectives on Stabilization Policy

Government Debt and Budget Deficits

The Financial System: Opportunities and Dangers

Filters

In the IS-LM model when M rises but P remains constant, in short-run equilibrium, in the usual case the interest rate and output .

The debt-deflation theory of the Great Depression suggests that an deflation redistributes wealth in such a way as to spending on goods and services.

In the IS-LM model when government spending rises, in short-run equilibrium, in the usual case the interest rate and output .

If money demand is infinite below some certain r (e.g., r) and zero above r, then the LM curve is and policy has no effect on output.

Use the following to answer questions : Exhibit: IS-LM Monetary Policy -(Exhibit: IS-LM Monetary Policy) Based on the graph, starting from equilibrium at interest rate r₁ and income Y₁, an increase in the money supply would generate the new equilibrium combination of interest rate and income:

If the short-run IS-LM equilibrium occurs at a level of income below the natural level of output, then in the long run the price level will , shifting the curve to the right and returning output to the natural level.

In the IS-LM model when the Federal Reserve decreases the money supply, people bonds and the interest rate , leading to a(n) __ in investment and income.