Question 1

Gary Becker's criticism of government spending on infrastructure as part of President Obama's stimulus plan was that:

Accepted Answer

A)  spending on infrastructure would not increase production in the economy. 
B)  there is a conflict between where spending on infrastructure would benefit employment and where infrastructure is most needed. 
C)  government spending on infrastructure is less effective in increasing production than an equal amount of private spending on infrastructure. 
D)  government spending on infrastructure only increases demand, but tax cuts increase demand and supply. 
A)  spending on infrastructure would not increase production in the economy. 
B)  there is a conflict between where spending on infrastructure would benefit employment and where infrastructure is most needed. 
C)  government spending on infrastructure is less effective in increasing production than an equal amount of private spending on infrastructure. 
D)  government spending on infrastructure only increases demand, but tax cuts increase demand and supply.

Question 2

John Maynard Keynes wrote that responsibility for low income and high unemployment in economic downturns should be placed on:

Accepted Answer

A)  low levels of capital. 
B)  an untrained labor force. 
C)  inadequate technology. 
D)  low aggregate demand. 
A)  low levels of capital. 
B)  an untrained labor force. 
C)  inadequate technology. 
D)  low aggregate demand.

Question 3

In the Keynesian-cross analysis, assume that the analysis of taxes is changed so that taxes, T, are made a function of income, as in T = T + tY, where T and t are parameters of the tax code and t is positive but less than 1. As compared to a case where t is zero, the multiplier for government purchases in this case will:

Accepted Answer

A)  not change. 
B)  be smaller. 
C)  be bigger. 
D)  be equal to 1. 
A)  not change. 
B)  be smaller. 
C)  be bigger. 
D)  be equal to 1.

Question 4

The equilibrium condition in the Keynesian-cross analysis in a closed economy is:

Accepted Answer

A)  income equals consumption plus investment plus government spending. 
B)  planned expenditure equals consumption plus planned investment plus government spending. 
C)  actual expenditure equals planned expenditure. 
D)  actual saving equals actual investment. 
A)  income equals consumption plus investment plus government spending. 
B)  planned expenditure equals consumption plus planned investment plus government spending. 
C)  actual expenditure equals planned expenditure. 
D)  actual saving equals actual investment.

Question 5

When the LM curve is drawn, the quantity that is held fixed is:

Accepted Answer

A)  the nominal money supply. 
B)  the real money supply. 
C)  government spending. 
D)  the tax rate. 
A)  the nominal money supply. 
B)  the real money supply. 
C)  government spending. 
D)  the tax rate.

Question 6

An explanation for the slope of the IS curve is that as the interest rate increases, the quantity of investment ______, and this shifts the expenditure function ______, thereby decreasing income.

Accepted Answer

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

Question 7

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. If the price level is fixed and the supply of money is raised to 2,800, then the equilibrium interest rate will:

Accepted Answer

A)  drop by 4 percent. 
B)  drop by 2 percent. 
C)  drop by 1 percent. 
D)  remain unchanged. 
A)  drop by 4 percent. 
B)  drop by 2 percent. 
C)  drop by 1 percent. 
D)  remain unchanged.

Question 8

In the Keynesian-cross model, actual expenditures differ from planned expenditures by the amount of:

Accepted Answer

A)  liquidity preference. 
B)  the government-purchases multiplier. 
C)  unplanned inventory investment. 
D)  real money balances. 
A)  liquidity preference. 
B)  the government-purchases multiplier. 
C)  unplanned inventory investment. 
D)  real money balances.

Question 9

How can the government expenditure multiplier be reinterpreted in terms of savings?

Accepted Answer

We know that @#LAT-DLM&Y / @#LAT-DLM&G = 1/(1-MPC). Rearrang

Question 10

The tax multiplier indicates how much ______ change(s) in response to a $1 change in taxes.

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 11

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

Accepted Answer

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

Question 12

For any given interest rate and price level, an increase in the money supply:

Accepted Answer

A)  lowers income. 
B)  raises income. 
C)  has no effect on income. 
D)  lowers velocity. 
A)  lowers income. 
B)  raises income. 
C)  has no effect on income. 
D)  lowers velocity.

Question 13

Explain what force moves the market back to equilibrium if the market is initially in disequilibrium in: a. the market for goods and services;
b. the market for real money balances.

Accepted Answer

a. In the market for goods and services

Question 14

Two interpretations of the IS-LM model are that the model explains:

Accepted Answer

A)  the determination of income in the short run when prices are fixed, or what shifts the aggregate demand curve. 
B)  the short-run quantity theory of income, or the short-run Fisher effect. 
C)  the determination of investment and saving, or what shifts the liquidity preference schedule. 
D)  changes in government spending and taxes, or the determination of the supply of real money balances. 
A)  the determination of income in the short run when prices are fixed, or what shifts the aggregate demand curve. 
B)  the short-run quantity theory of income, or the short-run Fisher effect. 
C)  the determination of investment and saving, or what shifts the liquidity preference schedule. 
D)  changes in government spending and taxes, or the determination of the supply of real money balances.

Question 15

Explain why an increase in the money supply, which is a change in the money market, will upset the equilibrium in the goods market.

Accepted Answer

An increase in the money supply will dec

Question 16

Use the following to answer question :  
-The above diagram shows how a rise in government expenditure (G) shifts the IS curve from IS1 to IS2. What are the levels of investments in Y1 and Y2?

Accepted Answer

The investment level remains same in bot

Question 17

Consider a closed economy to which the Keynesian-cross analysis applies. Consumption is given by the equation C = 200 + 2/3(Y - T). Planned investment is 300, as are government spending and taxes. a. If $Y$ is 1,500 , what is planned spending? What is inventory accumulati on or decumulation? Should equilibrium $Y$ be higher or lower than 1,500 ?
b. What is equilibrium $Y$ ? (Hint: Substitute the values of equations for planned consumption, investment, and government spending into the equation $Y = C + I + G$ and then solve for $Y$.)
c. What are equilibrium consumption, private saving, public saving, and national saving?
d. How much does equilibrium income decrease when $G$ is reduced to 200 ? What is the multiplier for government spending?

Accepted Answer

a. Planned spending is 1,600 . Inventory

Question 18

Assume that the equilibrium in the money market may be described as M/P = 0.5Y - 100r, and M/P equals 800. a. Write the $L M$ curve two ways, expressing $Y$ as a function of $r$ and $r$ as a function of $Y$. (Hint: $W$ rite the $L M$ curve only relating $Y$ and $r$, substitute out $M P$.)
b. What is the slope of the $L M$ curve?
c. If $r$ is 1 percent, what is $Y$ al ong the $L M$ curve? If $r$ is 3 percent, what is $Y$ al ong the $L M$ curve? If $r$ is 5 percent, what is $Y$ al ong the $L M$ curve?
d. If $M / P$ increases, does the $L M$ curve shift upward and to the left or downward and to the right?
e. If $M$ increases and $P$ is constant, does the $L M$ curve shift upward and to the left or downward and to the right?
f. If $P$ increases and $M$ is constant, does the $L M$ curve shift upward and to the left or downward and to the right?

Accepted Answer

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

Question 19

Along an IS curve all of the following are always true except:

Accepted Answer

A)  planned expenditures equal actual expenditures. 
B)  planned expenditures equal income. 
C)  the demand for real balances equals the supply of real balances. 
D)  there are no unplanned changes in inventories. 
A)  planned expenditures equal actual expenditures. 
B)  planned expenditures equal income. 
C)  the demand for real balances equals the supply of real balances. 
D)  there are no unplanned changes in inventories.

Question 20

In the Keynesian-cross model, fiscal policy has a multiplied effect on income because fiscal policy:

Accepted Answer

A)  increases the amount of money in the economy. 
B)  changes income, which changes consumption, which further changes income. 
C)  is government spending and, therefore, more powerful than private spending. 
D)  changes the interest rate. 
A)  increases the amount of money in the economy. 
B)  changes income, which changes consumption, which further changes income. 
C)  is government spending and, therefore, more powerful than private spending. 
D)  changes the interest rate.

Gary Becker's criticism of government spending on infrastructure as part of President Obama's stimulus plan was that:

John Maynard Keynes wrote that responsibility for low income and high unemployment in economic downturns should be placed on:

The equilibrium condition in the Keynesian-cross analysis in a closed economy is:

When the LM curve is drawn, the quantity that is held fixed is:

An explanation for the slope of the IS curve is that as the interest rate increases, the quantity of investment , and this shifts the expenditure function , thereby decreasing 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. If the price level is fixed and the supply of money is raised to 2,800, then the equilibrium interest rate will:

In the Keynesian-cross model, actual expenditures differ from planned expenditures by the amount of:

How can the government expenditure multiplier be reinterpreted in terms of savings?

The tax multiplier indicates how much ______ change(s) in response to a $1 change in taxes.

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

For any given interest rate and price level, an increase in the money supply:

Explain what force moves the market back to equilibrium if the market is initially in disequilibrium in: a. the market for goods and services; b. the market for real money balances.

Two interpretations of the IS-LM model are that the model explains:

Explain why an increase in the money supply, which is a change in the money market, will upset the equilibrium in the goods market.

Use the following to answer question : -The above diagram shows how a rise in government expenditure (G) shifts the IS curve from IS₁ to IS₂. What are the levels of investments in Y₁ and Y₂?

Along an IS curve all of the following are always true except:

In the Keynesian-cross model, fiscal policy has a multiplied effect on income because fiscal policy:

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

Gary Becker's criticism of government spending on infrastructure as part of President Obama's stimulus plan was that:

John Maynard Keynes wrote that responsibility for low income and high unemployment in economic downturns should be placed on:

The equilibrium condition in the Keynesian-cross analysis in a closed economy is:

When the LM curve is drawn, the quantity that is held fixed is:

An explanation for the slope of the IS curve is that as the interest rate increases, the quantity of investment ______, and this shifts the expenditure function ______, thereby decreasing 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. If the price level is fixed and the supply of money is raised to 2,800, then the equilibrium interest rate will:

In the Keynesian-cross model, actual expenditures differ from planned expenditures by the amount of:

How can the government expenditure multiplier be reinterpreted in terms of savings?

The tax multiplier indicates how much ______ change(s) in response to a $1 change in taxes.

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

For any given interest rate and price level, an increase in the money supply:

Explain what force moves the market back to equilibrium if the market is initially in disequilibrium in: a. the market for goods and services; b. the market for real money balances.

Two interpretations of the IS-LM model are that the model explains:

Explain why an increase in the money supply, which is a change in the money market, will upset the equilibrium in the goods market.

Use the following to answer question : -The above diagram shows how a rise in government expenditure (G) shifts the IS curve from IS1 to IS2. What are the levels of investments in Y1 and Y2?

Along an IS curve all of the following are always true except:

In the Keynesian-cross model, fiscal policy has a multiplied effect on income because fiscal policy:

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

An explanation for the slope of the IS curve is that as the interest rate increases, the quantity of investment , and this shifts the expenditure function , thereby decreasing 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. If the price level is fixed and the supply of money is raised to 2,800, then the equilibrium interest rate will:

Use the following to answer question : -The above diagram shows how a rise in government expenditure (G) shifts the IS curve from IS₁ to IS₂. What are the levels of investments in Y₁ and Y₂?