Question 1

The Keynesian-cross analysis assumes planned investment:

Accepted Answer

A)  is fixed and so does the IS analysis. 
B)  depends on the interest rate and so does the IS analysis. 
C)  is fixed, whereas the IS analysis assumes it depends on the interest rate. 
D)  depends on expenditure and so does the IS analysis. 
A)  is fixed and so does the IS analysis. 
B)  depends on the interest rate and so does the IS analysis. 
C)  is fixed, whereas the IS analysis assumes it depends on the interest rate. 
D)  depends on expenditure and so does the IS analysis.

Question 2

When Paul Volcker tightened the money supply:

Accepted Answer

A)  the inflation rate immediately fell. 
B)  nominal interest rates fell in the short run. 
C)  nominal interest rates fell in the long run. 
D)  real balances rose in the short run. 
A)  the inflation rate immediately fell. 
B)  nominal interest rates fell in the short run. 
C)  nominal interest rates fell in the long run. 
D)  real balances rose in the short run.

Question 3

The IS and LM curves together generally determine:

Accepted Answer

A)  income only. 
B)  the interest rate only. 
C)  both income and the interest rate. 
D)  income, the interest rate, and the price level. 
A)  income only. 
B)  the interest rate only. 
C)  both income and the interest rate. 
D)  income, the interest rate, and the price level.

Question 4

With the real money supply held constant, the theory of liquidity preference implies that a higher income level will be consistent with:

Accepted Answer

A)  no change in the interest rate. 
B)  a lower interest rate. 
C)  a higher interest rate. 
D)  first a lower and then a higher interest rate. 
A)  no change in the interest rate. 
B)  a lower interest rate. 
C)  a higher interest rate. 
D)  first a lower and then a higher interest rate.

Question 5

In the Keynesian-cross model, the equilibrium level of income is determined by:

Accepted Answer

A)  the factors of production. 
B)  the money supply. 
C)  planned spending. 
D)  liquidity preference. 
A)  the factors of production. 
B)  the money supply. 
C)  planned spending. 
D)  liquidity preference.

Question 6

One argument in favor of tax cuts over spending-based fiscal stimulus is that:

Accepted Answer

A)  tax cuts increase the MPC by a larger amount than government spending. 
B)  tax cuts temporarily increase planned spending, but government spending permanently increases private spending. 
C)  in theory the tax multiplier is larger than the government spending multiplier. 
D)  historically tax cuts have been more successful than spending-based fiscal stimulus. 
A)  tax cuts increase the MPC by a larger amount than government spending. 
B)  tax cuts temporarily increase planned spending, but government spending permanently increases private spending. 
C)  in theory the tax multiplier is larger than the government spending multiplier. 
D)  historically tax cuts have been more successful than spending-based fiscal stimulus.

Question 7

According to the theory of liquidity preference, the supply of nominal money balances:

Accepted Answer

A)  is chosen by the central bank. 
B)  depends on the interest rate. 
C)  varies with the price level. 
D)  changes as the level of income changes. 
A)  is chosen by the central bank. 
B)  depends on the interest rate. 
C)  varies with the price level. 
D)  changes as the level of income changes.

Question 8

Use the following to answer questions :
Exhibit: Keynesian Cross  
-(Exhibit: Keynesian Cross) In this graph, if firms are producing at level Y1, 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 9

The IS curve provides combinations of interest rates and income that satisfy equilibrium in the market for ______, and the LM curve provides combinations of interest rates and income that satisfy equilibrium in the market for ______.

Accepted Answer

A)  saving and investment; planned spending 
B)  real-money balances; loanable funds 
C)  goods and services; real money balances 
D)  real-money balances; goods and services 
A)  saving and investment; planned spending 
B)  real-money balances; loanable funds 
C)  goods and services; real money balances 
D)  real-money balances; goods and services

Question 10

The Keynesian cross shows:

Accepted Answer

A)  determination of equilibrium income and the interest rate in the short run. 
B)  determination of equilibrium income and the interest rate in the long run. 
C)  equality of planned expenditure and income in the short run. 
D)  equality of planned expenditure and income in the long run. 
A)  determination of equilibrium income and the interest rate in the short run. 
B)  determination of equilibrium income and the interest rate in the long run. 
C)  equality of planned expenditure and income in the short run. 
D)  equality of planned expenditure and income in the long run.

Question 11

Planned expenditure is a function of:

Accepted Answer

A)  planned investment. 
B)  planned government spending and taxes. 
C)  planned investment, government spending, and taxes. 
D)  national income and planned investment, government spending, and taxes. 
A)  planned investment. 
B)  planned government spending and taxes. 
C)  planned investment, government spending, and taxes. 
D)  national income and planned investment, government spending, and taxes.

Question 12

Assume that the consumption function is given by C = 200 + 0.5(Y - T) and the investment function is I = 1,000 - 200r, where r is measured in percent, G equals 300, and T equals 200. a. What is the numerical formula for the $I S$ curve? (Hint: Substitute for $C , I$, and $G$ in the equation $Y = C + I + G$ and then write an equation for $Y$ as a function of $r$ or $r$ as a function of $Y$.) Express the equation two ways.
b. What is the slope of the IS curve? (Hint: The slope of the IS curve is the coefficient of $Y$ when the IS curve is written expressing $r$ as a function of $Y$.)
c. If $r$ is one percent, what is $I$ ? What is $Y$ ? If $r$ is 3 percent, what is $I$ ? What is $Y$ ? If $r$ is 5 percent, what is $I$ ? What is $Y$ ?
d. If $G$ increases, does the $I S$ curve shift upward and to the right or downward and to the left?

Accepted Answer

a. @#LAT-DLM& or @#LAT-DLM&.
b. The slope of the @#LAT-DLM& curve is @#LAT-DLM&.

Question 13

At a given interest rate, an increase in the nominal money supply ______ the level of income that is consistent with equilibrium in the market for real balances.

Accepted Answer

A)  raises 
B)  lowers 
C)  does not change 
D)  may either raise or lower 
A)  raises 
B)  lowers 
C)  does not change 
D)  may either raise or lower

Question 14

According to the theory of liquidity preference, if the supply of real money balances exceeds the demand for real money balances, individuals will:

Accepted Answer

A)  sell interest-earning assets in order to obtain non-interest-bearing money. 
B)  purchase interest-earning assets in order to reduce holdings of non-interest-bearing money. 
C)  purchase more goods and services. 
D)  be content with their portfolios. 
A)  sell interest-earning assets in order to obtain non-interest-bearing money. 
B)  purchase interest-earning assets in order to reduce holdings of non-interest-bearing money. 
C)  purchase more goods and services. 
D)  be content with their portfolios.

Question 15

The demand for money (even if we take into account real balances, it is demand for money deflated by price levels) helps determine the equilibrium level of the interest rate, even though holding money does not earn any interest income. How is this possible?

Accepted Answer

Money is just one form of financial asse

Question 16

In the IS-LM model, which two variables are influenced by the interest rate?

Accepted Answer

A)  supply of nominal money balances and demand for real balances 
B)  demand for real money balances and government purchases 
C)  supply of nominal money balances and investment spending 
D)  demand for real money balances and investment spending 
A)  supply of nominal money balances and demand for real balances 
B)  demand for real money balances and government purchases 
C)  supply of nominal money balances and investment spending 
D)  demand for real money balances and investment spending

Question 17

Reducing the money supply ______ nominal interest rates in the short run, and ______ nominal interest rates in the long run.

Accepted Answer

A)  produces no change in; raises 
B)  raises; produces no change in 
C)  raises; lowers 
D)  lowers; raises 
A)  produces no change in; raises 
B)  raises; produces no change in 
C)  raises; lowers 
D)  lowers; raises

Question 18

With planned expenditure and the equilibrium condition Y = PE drawn on a graph with income along the horizontal axis, if income exceeds expenditure, then income is to the ______ of equilibrium income and there is unplanned inventory ______.

Accepted Answer

A)  right; decumulation 
B)  right; accumulation 
C)  left; decumulation 
D)  left; accumulation 
A)  right; decumulation 
B)  right; accumulation 
C)  left; decumulation 
D)  left; accumulation

Question 19

The theory of liquidity preference implies that, other things being equal, an increase in the real money supply will:

Accepted Answer

A)  lower the interest rate. 
B)  raise the interest rate. 
C)  have no effect on the interest rate. 
D)  first lower and then raise the interest rate. 
A)  lower the interest rate. 
B)  raise the interest rate. 
C)  have no effect on the interest rate. 
D)  first lower and then raise the interest rate.

Question 20

A variable that links the market for goods and services and the market for real money balances in the IS-LM model is the:

Accepted Answer

A)  consumption function. 
B)  interest rate. 
C)  price level. 
D)  nominal money supply. 
A)  consumption function. 
B)  interest rate. 
C)  price level. 
D)  nominal money supply.

The Keynesian-cross analysis assumes planned investment:

When Paul Volcker tightened the money supply:

The IS and LM curves together generally determine:

With the real money supply held constant, the theory of liquidity preference implies that a higher income level will be consistent with:

In the Keynesian-cross model, the equilibrium level of income is determined by:

One argument in favor of tax cuts over spending-based fiscal stimulus is that:

According to the theory of liquidity preference, the supply of nominal money balances:

Use the following to answer questions : Exhibit: Keynesian Cross -(Exhibit: Keynesian Cross) In this graph, if firms are producing at level Y₁, then inventories will , inducing firms to production.

The IS curve provides combinations of interest rates and income that satisfy equilibrium in the market for , and the LM curve provides combinations of interest rates and income that satisfy equilibrium in the market for .

The Keynesian cross shows:

Planned expenditure is a function of:

At a given interest rate, an increase in the nominal money supply ______ the level of income that is consistent with equilibrium in the market for real balances.

According to the theory of liquidity preference, if the supply of real money balances exceeds the demand for real money balances, individuals will:

The demand for money (even if we take into account real balances, it is demand for money deflated by price levels) helps determine the equilibrium level of the interest rate, even though holding money does not earn any interest income. How is this possible?

In the IS-LM model, which two variables are influenced by the interest rate?

Reducing the money supply nominal interest rates in the short run, and nominal interest rates in the long run.

With planned expenditure and the equilibrium condition Y = PE drawn on a graph with income along the horizontal axis, if income exceeds expenditure, then income is to the of equilibrium income and there is unplanned inventory .

The theory of liquidity preference implies that, other things being equal, an increase in the real money supply will:

A variable that links the market for goods and services and the market for real money balances in the IS-LM model is the:

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

The Keynesian-cross analysis assumes planned investment:

When Paul Volcker tightened the money supply:

The IS and LM curves together generally determine:

With the real money supply held constant, the theory of liquidity preference implies that a higher income level will be consistent with:

In the Keynesian-cross model, the equilibrium level of income is determined by:

One argument in favor of tax cuts over spending-based fiscal stimulus is that:

According to the theory of liquidity preference, the supply of nominal money balances:

Use the following to answer questions : Exhibit: Keynesian Cross -(Exhibit: Keynesian Cross) In this graph, if firms are producing at level Y1, then inventories will ______, inducing firms to ______ production.

The IS curve provides combinations of interest rates and income that satisfy equilibrium in the market for ______, and the LM curve provides combinations of interest rates and income that satisfy equilibrium in the market for ______.

The Keynesian cross shows:

Planned expenditure is a function of:

At a given interest rate, an increase in the nominal money supply ______ the level of income that is consistent with equilibrium in the market for real balances.

According to the theory of liquidity preference, if the supply of real money balances exceeds the demand for real money balances, individuals will:

The demand for money (even if we take into account real balances, it is demand for money deflated by price levels) helps determine the equilibrium level of the interest rate, even though holding money does not earn any interest income. How is this possible?

In the IS-LM model, which two variables are influenced by the interest rate?

Reducing the money supply ______ nominal interest rates in the short run, and ______ nominal interest rates in the long run.

With planned expenditure and the equilibrium condition Y = PE drawn on a graph with income along the horizontal axis, if income exceeds expenditure, then income is to the ______ of equilibrium income and there is unplanned inventory ______.

The theory of liquidity preference implies that, other things being equal, an increase in the real money supply will:

A variable that links the market for goods and services and the market for real money balances in the IS-LM model is the:

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: Keynesian Cross -(Exhibit: Keynesian Cross) In this graph, if firms are producing at level Y₁, then inventories will , inducing firms to production.

The IS curve provides combinations of interest rates and income that satisfy equilibrium in the market for , and the LM curve provides combinations of interest rates and income that satisfy equilibrium in the market for .

Reducing the money supply nominal interest rates in the short run, and nominal interest rates in the long run.

With planned expenditure and the equilibrium condition Y = PE drawn on a graph with income along the horizontal axis, if income exceeds expenditure, then income is to the of equilibrium income and there is unplanned inventory .