Question 1

The simple investment function shows that investment ______ as ______ increases.

Accepted Answer

A)  decreases; the interest rate 
B)  increases; the interest rate 
C)  decreases; government spending 
D)  increases; government spending 
A)  decreases; the interest rate 
B)  increases; the interest rate 
C)  decreases; government spending 
D)  increases; government spending

Question 2

The government-purchases multiplier indicates how much ______ change(s) in response to a $1 change in government purchases.

Accepted Answer

A)  the budget deficit 
B)  consumption 
C)  income 
D)  real balances 
A)  the budget deficit 
B)  consumption 
C)  income 
D)  real balances

Question 3

In the Keynesian-cross model, a decrease in the interest rate ______ planned investment spending and ______ the equilibrium level of income.

Accepted Answer

A)  increases; increases 
B)  increases; decreases 
C)  decreases; decreases 
D)  decreases; increases 
A)  increases; increases 
B)  increases; decreases 
C)  decreases; decreases 
D)  decreases; increases

Question 4

Assume that the money demand function is (M/P)d = 2,200 - 200r, where r is the interest rate in percent. The money supply M is 2,000 and the price level P is 2. The equilibrium interest rate is ______ percent.

Accepted Answer

A)  2 
B)  4 
C)  6 
D)  8 
A)  2 
B)  4 
C)  6 
D)  8

Question 5

Assume that a government raises its own expenditures and funds those expenditures by printing more money, thereby raising the money supply in the economy. How will this affect the IS-LM curve and the equilibrium level of income and the interest rate

Accepted Answer

The rise in government expenditures will

Question 6

a. Suppose Congress decides to reduce the budget deficit by cutting government spending. Use the Keynesian-cross model to illustrate graphically the impact of a reduction in government purchases 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 cut in government spending and the time horizon appropriate for this analysis.

Accepted Answer

a. @#IMG-DLM& 
b. The equilibrium level

Question 7

A decrease in the nominal money supply, other things being equal, 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.

Question 8

Tax cuts stimulate ______ by improving workers' incentive and expand ______ by raising households' disposable income.

Accepted Answer

A)  velocity; demand for loanable funds 
B)  demand for loanable funds; velocity 
C)  aggregate demand; aggregate supply 
D)  aggregate supply; aggregate demand 
A)  velocity; demand for loanable funds 
B)  demand for loanable funds; velocity 
C)  aggregate demand; aggregate supply 
D)  aggregate supply; aggregate demand

Question 9

During a recession, consumers may want to save more to provide themselves with a reserve to cushion possible job losses. Use the Keynesian model to describe the impact of an exogenous decrease in consumption (a decrease in
C) on the equilibrium level of income in the economy. Will aggregate national saving increase?

Accepted Answer

A decrease in exogenous consumption redu

Question 10

Consider the impact of an increase in thriftiness in the Keynesian-cross analysis. Assume that the marginal propensity to consume is unchanged, but the intercept of the consumption function is made smaller so that at every income level saving is greater. This will:

Accepted Answer

A)  lower equilibrium income by the decrease in the intercept multiplied by the multiplier. 
B)  lower equilibrium income by the decrease in the intercept. 
C)  raise equilibrium income by the decrease in the intercept. 
D)  raise equilibrium income by the decrease in the intercept multiplied by the multiplier. 
A)  lower equilibrium income by the decrease in the intercept multiplied by the multiplier. 
B)  lower equilibrium income by the decrease in the intercept. 
C)  raise equilibrium income by the decrease in the intercept. 
D)  raise equilibrium income by the decrease in the intercept multiplied by the multiplier.

Question 11

Changes in fiscal policy shift the:

Accepted Answer

A)  LM curve. 
B)  money demand curve. 
C)  money supply curve. 
D)  IS curve. 
A)  LM curve. 
B)  money demand curve. 
C)  money supply curve. 
D)  IS curve.

Question 12

An IS curve shows combinations of:

Accepted Answer

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

Question 13

Consider the impact of an increase in thriftiness in the Keynesian-cross analysis. Assume that the marginal propensity to consume is unchanged, but the intercept of the consumption function is made smaller so that at every income level saving is greater. This will:

Accepted Answer

A)  increase saving by the decrease in the intercept. 
B)  lead to no change in saving. 
C)  decrease saving by the decrease in the intercept. 
D)  lead to an increase in investment. 
A)  increase saving by the decrease in the intercept. 
B)  lead to no change in saving. 
C)  decrease saving by the decrease in the intercept. 
D)  lead to an increase in investment.

Question 14

The IS-LM model is generally used:

Accepted Answer

A)  only in the short run. 
B)  only in the long run. 
C)  both in the short run and the long run. 
D)  in determining the price level. 
A)  only in the short run. 
B)  only in the long run. 
C)  both in the short run and the long run. 
D)  in determining the price level.

Question 15

According to the theory of liquidity preference, if the demand for real money balances exceeds the supply of 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 fewer 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 fewer goods and services. 
D)  be content with their portfolios.

Question 16

When firms experience unplanned inventory accumulation, they typically:

Accepted Answer

A)  build new plants. 
B)  lay off workers and reduce production. 
C)  hire more workers and increase production. 
D)  call for more government spending. 
A)  build new plants. 
B)  lay off workers and reduce production. 
C)  hire more workers and increase production. 
D)  call for more government spending.

Question 17

Along any given IS curve:

Accepted Answer

A)  tax rates are fixed, but government spending varies. 
B)  government spending is fixed, but tax rates vary. 
C)  both government spending and tax rates vary. 
D)  both government spending and tax rates are fixed. 
A)  tax rates are fixed, but government spending varies. 
B)  government spending is fixed, but tax rates vary. 
C)  both government spending and tax rates vary. 
D)  both government spending and tax rates are fixed.

Question 18

In the Keynesian-cross model, if government purchases increase by 100, then planned expenditures ______ for any given level of income.

Accepted Answer

A)  increase by 100 
B)  increase by more than 100 
C)  decrease by 100 
D)  increase, but by less than 100 
A)  increase by 100 
B)  increase by more than 100 
C)  decrease by 100 
D)  increase, but by less than 100

Question 19

The theory of liquidity preference implies that:

Accepted Answer

A)  as the interest rate rises, the demand for real balances will fall. 
B)  as the interest rate rises, the demand for real balances will rise. 
C)  the interest rate will have no effect on the demand for real balances. 
D)  as the interest rate rises, income will rise. 
A)  as the interest rate rises, the demand for real balances will fall. 
B)  as the interest rate rises, the demand for real balances will rise. 
C)  the interest rate will have no effect on the demand for real balances. 
D)  as the interest rate rises, income will rise.

Question 20

The interest rate determines ______ in the goods market and money ______ in the money market.

Accepted Answer

A)  government spending; demand 
B)  government spending; supply 
C)  investment spending; demand 
D)  investment spending; supply 
A)  government spending; demand 
B)  government spending; supply 
C)  investment spending; demand 
D)  investment spending; supply

The simple investment function shows that investment as increases.

The government-purchases multiplier indicates how much ______ change(s) in response to a $1 change in government purchases.

In the Keynesian-cross model, a decrease in the interest rate planned investment spending and the equilibrium level of income.

Assume that the money demand function is (M/P)^d = 2,200 - 200r, where r is the interest rate in percent. The money supply M is 2,000 and the price level P is 2. The equilibrium interest rate is ______ percent.

Assume that a government raises its own expenditures and funds those expenditures by printing more money, thereby raising the money supply in the economy. How will this affect the IS-LM curve and the equilibrium level of income and the interest rate

A decrease in the nominal money supply, other things being equal, will shift the LM curve:

Tax cuts stimulate by improving workers' incentive and expand by raising households' disposable income.

Consider the impact of an increase in thriftiness in the Keynesian-cross analysis. Assume that the marginal propensity to consume is unchanged, but the intercept of the consumption function is made smaller so that at every income level saving is greater. This will:

Changes in fiscal policy shift the:

An IS curve shows combinations of:

Consider the impact of an increase in thriftiness in the Keynesian-cross analysis. Assume that the marginal propensity to consume is unchanged, but the intercept of the consumption function is made smaller so that at every income level saving is greater. This will:

The IS-LM model is generally used:

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

When firms experience unplanned inventory accumulation, they typically:

Along any given IS curve:

In the Keynesian-cross model, if government purchases increase by 100, then planned expenditures ______ for any given level of income.

The theory of liquidity preference implies that:

The interest rate determines in the goods market and money in the money market.

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 simple investment function shows that investment ______ as ______ increases.

The government-purchases multiplier indicates how much ______ change(s) in response to a $1 change in government purchases.

In the Keynesian-cross model, a decrease in the interest rate ______ planned investment spending and ______ the equilibrium level of income.

Assume that the money demand function is (M/P)d = 2,200 - 200r, where r is the interest rate in percent. The money supply M is 2,000 and the price level P is 2. The equilibrium interest rate is ______ percent.

Assume that a government raises its own expenditures and funds those expenditures by printing more money, thereby raising the money supply in the economy. How will this affect the IS-LM curve and the equilibrium level of income and the interest rate

A decrease in the nominal money supply, other things being equal, will shift the LM curve:

Tax cuts stimulate ______ by improving workers' incentive and expand ______ by raising households' disposable income.

Consider the impact of an increase in thriftiness in the Keynesian-cross analysis. Assume that the marginal propensity to consume is unchanged, but the intercept of the consumption function is made smaller so that at every income level saving is greater. This will:

Changes in fiscal policy shift the:

An IS curve shows combinations of:

Consider the impact of an increase in thriftiness in the Keynesian-cross analysis. Assume that the marginal propensity to consume is unchanged, but the intercept of the consumption function is made smaller so that at every income level saving is greater. This will:

The IS-LM model is generally used:

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

When firms experience unplanned inventory accumulation, they typically:

Along any given IS curve:

In the Keynesian-cross model, if government purchases increase by 100, then planned expenditures ______ for any given level of income.

The theory of liquidity preference implies that:

The interest rate determines ______ in the goods market and money ______ in the money market.

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

The simple investment function shows that investment as increases.

In the Keynesian-cross model, a decrease in the interest rate planned investment spending and the equilibrium level of income.

Assume that the money demand function is (M/P)^d = 2,200 - 200r, where r is the interest rate in percent. The money supply M is 2,000 and the price level P is 2. The equilibrium interest rate is ______ percent.

Tax cuts stimulate by improving workers' incentive and expand by raising households' disposable income.

The interest rate determines in the goods market and money in the money market.