Question 1

In the liquidity preference model, what adjusts to move the money market to equilibrium following a change in the money supply?

Accepted Answer

A)  planned spending 
B)  the interest rate 
C)  production 
D)  the price level 
A)  planned spending 
B)  the interest rate 
C)  production 
D)  the price level

Question 2

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 r1, 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 3

a. Suppose Congress passes legislation that significantly reduces taxes. Use the Keynesian- cross madel to illustrate graphically the impact of a reduction in taxes on the equilibrium level of income. Be sure to label: 
i. the axes 
ii. the curves 
iii. the initial equilibrivm 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 tax cut and the time horizon appropriate for this analysis.

Accepted Answer

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

Question 4

According to the Keynesian-cross analysis, when there is a shift upward in the government-purchases schedule by an amount $\Delta$G and the planned expenditure schedule by an equal amount, then equilibrium income rises by:

Accepted Answer

A)  one unit. 
B)  $\Delta$G. 
C)  $\Delta$G divided by the quantity one minus the marginal propensity to consume. 
D)  $\Delta$G multiplied by the quantity one plus the marginal propensity to consume. 
A)  one unit. 
B)  $\Delta$G. 
C)  $\Delta$G divided by the quantity one minus the marginal propensity to consume. 
D)  $\Delta$G multiplied by the quantity one plus the marginal propensity to consume.

Question 5

Use the following to answer questions :
Exhibit: Market for Real Money Balances  
-(Exhibit: Market for Real Money Balances) Based on the graph, the equilibrium levels of interest rates and real money balances are:

Accepted Answer

A)  r1 and M1/P1 
B)  r2 and M2/P2 
C)  r3 and M2/P2 
D)  r3 and M3/P3 
A)  r1 and M1/P1 
B)  r2 and M2/P2 
C)  r3 and M2/P2 
D)  r3 and M3/P3

Question 6

Compare the predicted impact of an increase in the money supply in the liquidity preference model versus the impact predicted by the quantity theory and the Fisher effect. Can you reconcile this difference?

Accepted Answer

The liquidity preference model predicts

In the liquidity preference model, what adjusts to move the money market to equilibrium following a change in the money supply?

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 r₁, then people will bonds and the interest rate will .

According to the Keynesian-cross analysis, when there is a shift upward in the government-purchases schedule by an amount $\Delta$ G and the planned expenditure schedule by an equal amount, then equilibrium income rises by:

Use the following to answer questions : Exhibit: Market for Real Money Balances -(Exhibit: Market for Real Money Balances) Based on the graph, the equilibrium levels of interest rates and real money balances are:

Compare the predicted impact of an increase in the money supply in the liquidity preference model versus the impact predicted by the quantity theory and the Fisher effect. Can you reconcile this difference?

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

In the liquidity preference model, what adjusts to move the money market to equilibrium following a change in the money supply?

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 r1, then people will ______ bonds and the interest rate will ______.

According to the Keynesian-cross analysis, when there is a shift upward in the government-purchases schedule by an amount Δ\DeltaΔ G and the planned expenditure schedule by an equal amount, then equilibrium income rises by:

Use the following to answer questions : Exhibit: Market for Real Money Balances -(Exhibit: Market for Real Money Balances) Based on the graph, the equilibrium levels of interest rates and real money balances are:

Compare the predicted impact of an increase in the money supply in the liquidity preference model versus the impact predicted by the quantity theory and the Fisher effect. Can you reconcile this difference?

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 r₁, then people will bonds and the interest rate will .

According to the Keynesian-cross analysis, when there is a shift upward in the government-purchases schedule by an amount $\Delta$ G and the planned expenditure schedule by an equal amount, then equilibrium income rises by: