Question 1

If the interest rate is above the equilibrium value, the:

Accepted Answer

A)  demand for real balances exceeds the supply. 
B)  supply of real balances exceeds the demand. 
C)  market for real balances clears. 
D)  demand for real balances increases. 
A)  demand for real balances exceeds the supply. 
B)  supply of real balances exceeds the demand. 
C)  market for real balances clears. 
D)  demand for real balances increases. B

Question 2

The IS curve shifts when any of the following economic variables change except:

Accepted Answer

A)  the interest rate. 
B)  government spending. 
C)  tax rates. 
D)  the marginal propensity to consume. 
A)  the interest rate. 
B)  government spending. 
C)  tax rates. 
D)  the marginal propensity to consume. A

Question 3

When drawn on a graph with Y along the horizontal axis and PE along the vertical axis, the line showing planned expenditure rises to the:

Accepted Answer

A)  right with a slope less than one. 
B)  right with a slope greater than one. 
C)  left with a slope less than one. 
D)  left with a slope greater than one. 
A)  right with a slope less than one. 
B)  right with a slope greater than one. 
C)  left with a slope less than one. 
D)  left with a slope greater than one. A

Question 4

Assume that planned expenditure consists of consumption, investment, and government expenditures only. Further, assume that consumption C= c(Y - tY), where tY denotes taxes as a function of income. Calculate the equilibrium level of Y and the government expenditure multiplier.

Accepted Answer

For equilibrium, Actual Expend

Question 5

Both Keynesians and supply-siders believe a tax cut will lead to growth:

Accepted Answer

A)  and both agree it works through incentive effects. 
B)  but Keynesians believe it works through incentive effects whereas supply-siders believe it works through aggregate demand. 
C)  but Keynesians believe it works through aggregate demand whereas supply-siders believe it works through incentive effects. 
D)  and both agree it works through aggregate demand. 
A)  and both agree it works through incentive effects. 
B)  but Keynesians believe it works through incentive effects whereas supply-siders believe it works through aggregate demand. 
C)  but Keynesians believe it works through aggregate demand whereas supply-siders believe it works through incentive effects. 
D)  and both agree it works through aggregate demand.

Question 6

When planned expenditure is drawn on a graph as a function of income, the slope of the line is:

Accepted Answer

A)  zero. 
B)  between zero and one. 
C)  one. 
D)  greater than one. 
A)  zero. 
B)  between zero and one. 
C)  one. 
D)  greater than one.

Question 7

Use the following to answer questions :
Exhibit: Market for Real Money Balances  
-(Exhibit: Market for Real Money Balances) Based on the graph, if the interest rate is r3, then people will ______ bonds and the interest rate will ______.

Accepted Answer

A)  sell; rise 
B)  sell; fall 
C)  buy; rise 
D)  buy; fall 
A)  sell; rise 
B)  sell; fall 
C)  buy; rise 
D)  buy; fall

Question 8

According to the theory of liquidity preference, tightening the money supply will ______ nominal interest rates in the short run, and, according to the Fisher effect, tightening the money supply will ______ nominal interest rates in the long run.

Accepted Answer

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

Question 9

Use the following to answer questions :
Exhibit: Keynesian Cross  
-(Exhibit: Keynesian Cross) In this graph, if firms are producing at level Y3, then inventories will ______, inducing firms to ______ production.

Accepted Answer

A)  rise; increase 
B)  rise; decrease 
C)  fall; increase 
D)  fall; decrease 
A)  rise; increase 
B)  rise; decrease 
C)  fall; increase 
D)  fall; decrease

Question 10

An LM curve shows combinations of:

Accepted Answer

A)  taxes and government spending. 
B)  nominal money balances and price levels. 
C)  interest rates and income, which bring equilibrium in the market for real money balances. 
D)  interest rates and income, which bring equilibrium in the market for goods and services. 
A)  taxes and government spending. 
B)  nominal money balances and price levels. 
C)  interest rates and income, which bring equilibrium in the market for real money balances. 
D)  interest rates and income, which bring equilibrium in the market for goods and services.

Question 11

According to the theory of liquidity preference, holding the supply of real money balances constant, an increase in income will ______ the demand for real money balances and will ______ the interest rate.

Accepted Answer

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

Question 12

An increase in income raises money ______ and ______ the equilibrium interest rate.

Accepted Answer

A)  demand; raises 
B)  demand; lowers 
C)  supply; raises 
D)  supply; lowers 
A)  demand; raises 
B)  demand; lowers 
C)  supply; raises 
D)  supply; lowers

Question 13

a. Graphically illustrate how an increase in income affects the equilibrium levels of saving, investment, and the interest rate in the loanable funds model. Be sure to label: 
i. the axes 
ii. the curves 
iii. the initial equilibrinm values 
iv. the direction the curve shifts
v. the terminal equilibrium values.

b. Explain in words what happens to the equilibrium levels of saving, investment, and the interest rates as a result of the increase in income.

Accepted Answer

a. @#IMG-DLM& 
b. The equilibr

Question 14

a. Use the Keynesian-cross model to illustrate graphically the impact of an increase in the interest rate on the equilibrium level of income. Be sure to label: 
i. the axes
ii. the curves
iii. the initial equilibrium values 
iv. the direction the curve shifts 
v. the terminal equilibrium values

b. Explain in words what happens to equilibrium income as a result of the increase in the interest rate.

Accepted Answer

a. @#IMG-DLM& 
b. Th

Question 15

In the Keynesian-cross model with a given MPC, the government-expenditure multiplier ______ the tax multiplier.

Accepted Answer

A)  is larger than 
B)  equals 
C)  is smaller than 
D)  is the inverse of the 
A)  is larger than 
B)  equals 
C)  is smaller than 
D)  is the inverse of the

Question 16

An increase in taxes shifts the IS curve, drawn with income along the horizontal axis and the interest rate along the vertical axis:

Accepted Answer

A)  downward and to the left. 
B)  upward and to the right. 
C)  upward and to the left. 
D)  downward and to the right. 
A)  downward and to the left. 
B)  upward and to the right. 
C)  upward and to the left. 
D)  downward and to the right.

Question 17

Use the following to answer questions :
Exhibit: Keynesian Cross  
-(Exhibit: Keynesian Cross) In this graph, the equilibrium levels of income and expenditure are:

Accepted Answer

A)  Y1 and PE1. 
B)  Y2 and PE2. 
C)  Y3 and PE3. 
D)  Y3 and PE4. 
A)  Y1 and PE1. 
B)  Y2 and PE2. 
C)  Y3 and PE3. 
D)  Y3 and PE4.

Question 18

The LM curve, in the usual case:

Accepted Answer

A)  is vertical. 
B)  is horizontal. 
C)  slopes down to the right. 
D)  slopes up to the right. 
A)  is vertical. 
B)  is horizontal. 
C)  slopes down to the right. 
D)  slopes up to the right.

Question 19

Assume an economy where the consumption function is defined as C= CC + cY, and the investment function is defined as I= ir, where Y is total income and r is the interest rate. What does the slope of the IS curve depend on?

Accepted Answer

IS plots the equilibrium levels of inter

Question 20

A decrease in the price level, holding nominal money supply constant, will shift the LM curve:

Accepted Answer

A)  upward and to the right. 
B)  downward and to the right. 
C)  downward and to the left. 
D)  upward and to the left. 
A)  upward and to the right. 
B)  downward and to the right. 
C)  downward and to the left. 
D)  upward and to the left.

If the interest rate is above the equilibrium value, the:

The IS curve shifts when any of the following economic variables change except:

When drawn on a graph with Y along the horizontal axis and PE along the vertical axis, the line showing planned expenditure rises to the:

Assume that planned expenditure consists of consumption, investment, and government expenditures only. Further, assume that consumption C= c(Y - tY), where tY denotes taxes as a function of income. Calculate the equilibrium level of Y and the government expenditure multiplier.

Both Keynesians and supply-siders believe a tax cut will lead to growth:

When planned expenditure is drawn on a graph as a function of income, the slope of the line is:

Use the following to answer questions : Exhibit: Market for Real Money Balances -(Exhibit: Market for Real Money Balances) Based on the graph, if the interest rate is r₃, then people will bonds and the interest rate will .

According to the theory of liquidity preference, tightening the money supply will nominal interest rates in the short run, and, according to the Fisher effect, tightening the money supply will nominal interest rates in the long run.

Use the following to answer questions : Exhibit: Keynesian Cross -(Exhibit: Keynesian Cross) In this graph, if firms are producing at level Y₃, then inventories will , inducing firms to production.

An LM curve shows combinations of:

According to the theory of liquidity preference, holding the supply of real money balances constant, an increase in income will the demand for real money balances and will the interest rate.

An increase in income raises money and the equilibrium interest rate.

In the Keynesian-cross model with a given MPC, the government-expenditure multiplier ______ the tax multiplier.

An increase in taxes shifts the IS curve, drawn with income along the horizontal axis and the interest rate along the vertical axis:

Use the following to answer questions : Exhibit: Keynesian Cross -(Exhibit: Keynesian Cross) In this graph, the equilibrium levels of income and expenditure are:

The LM curve, in the usual case:

Assume an economy where the consumption function is defined as C= CC + cY, and the investment function is defined as I= ir, where Y is total income and r is the interest rate. What does the slope of the IS curve depend on?

A decrease in the price level, holding nominal money supply constant, will shift the LM curve:

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 Ii: Applying 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

Exam 11: Aggregate Demand I: Building the Is-Lm Model

If the interest rate is above the equilibrium value, the:

The IS curve shifts when any of the following economic variables change except:

When drawn on a graph with Y along the horizontal axis and PE along the vertical axis, the line showing planned expenditure rises to the:

Assume that planned expenditure consists of consumption, investment, and government expenditures only. Further, assume that consumption C= c(Y - tY), where tY denotes taxes as a function of income. Calculate the equilibrium level of Y and the government expenditure multiplier.

Both Keynesians and supply-siders believe a tax cut will lead to growth:

When planned expenditure is drawn on a graph as a function of income, the slope of the line is:

Use the following to answer questions : Exhibit: Market for Real Money Balances -(Exhibit: Market for Real Money Balances) Based on the graph, if the interest rate is r3, then people will ______ bonds and the interest rate will ______.

According to the theory of liquidity preference, tightening the money supply will ______ nominal interest rates in the short run, and, according to the Fisher effect, tightening the money supply will ______ nominal interest rates in the long run.

Use the following to answer questions : Exhibit: Keynesian Cross -(Exhibit: Keynesian Cross) In this graph, if firms are producing at level Y3, then inventories will ______, inducing firms to ______ production.

An LM curve shows combinations of:

According to the theory of liquidity preference, holding the supply of real money balances constant, an increase in income will ______ the demand for real money balances and will ______ the interest rate.

An increase in income raises money ______ and ______ the equilibrium interest rate.

In the Keynesian-cross model with a given MPC, the government-expenditure multiplier ______ the tax multiplier.

An increase in taxes shifts the IS curve, drawn with income along the horizontal axis and the interest rate along the vertical axis:

Use the following to answer questions : Exhibit: Keynesian Cross -(Exhibit: Keynesian Cross) In this graph, the equilibrium levels of income and expenditure are:

The LM curve, in the usual case:

Assume an economy where the consumption function is defined as C= CC + cY, and the investment function is defined as I= ir, where Y is total income and r is the interest rate. What does the slope of the IS curve depend on?

A decrease in the price level, holding nominal money supply constant, will shift the LM curve:

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 Ii: Applying 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

Use the following to answer questions : Exhibit: Market for Real Money Balances -(Exhibit: Market for Real Money Balances) Based on the graph, if the interest rate is r₃, then people will bonds and the interest rate will .

According to the theory of liquidity preference, tightening the money supply will nominal interest rates in the short run, and, according to the Fisher effect, tightening the money supply will nominal interest rates in the long run.

Use the following to answer questions : Exhibit: Keynesian Cross -(Exhibit: Keynesian Cross) In this graph, if firms are producing at level Y₃, then inventories will , inducing firms to production.

According to the theory of liquidity preference, holding the supply of real money balances constant, an increase in income will the demand for real money balances and will the interest rate.

An increase in income raises money and the equilibrium interest rate.