Question 1

Graphically depict how spending shocks affect the IS curve.

Accepted Answer

The answer of Graphically depict how spending shocks affect the...

Question 2

The economy shown here begins at a 0% output gap. Now suppose that manufacturers in China face rising costs of rubber as an input. This leads to:

Accepted Answer

A) a new output gap of -4%. 
B) an unchanged output gap. 
C) a new real interest rate of 4%. 
D) a new output gap of -6%%.

Question 3

Tariffs on inputs lead to a _____ shock.

Accepted Answer

A) deflation 
B) financial 
C) supply 
D) spending

Question 4

The 1973 OPEC oil embargo is an example of a negative _____ shock to the U.S. economy.

Accepted Answer

A) deflation 
B) financial 
C) supply 
D) spending

Question 5

Take a look at the IS-MP-PC model shown here. If a spending shock causes the IS curve to shift right until the output gap is 0%, what will the new equilibrium real interest rate be?

Accepted Answer

A) 5%. 
B) 3%. 
C) -4%. 
D) 0%.

Question 6

If the Canadian dollar depreciates, which of the following graphs correctly represents the effect on the IS curve in Canada?

Accepted Answer

A) 
 
B) 
 
C) 
 
D)

Question 7

The Fed model combines the _____ curve, the _____ curve, and the ____ curve to link interest rates, the output gap, and inflation.

Accepted Answer

A) IS; MP; Phillips 
B) AD; AS; Phillips 
C) dollar demand; dollar supply; AS 
D) demand for loanable funds; supply of loanable funds; AD

Question 8

You are an economic adviser using the Fed model to analyze the economy. What is the effect of a rise in the risk premium in the economy?

Accepted Answer

A) a rise in the real interest rate, falling output, and unexpected deflation 
B) a rise in the real interest rate, rising output, and unexpected inflation 
C) a fall in the real interest rate, falling output, and unexpected deflation 
D) a fall in the real interest rate, rising output, and unexpected inflation

Question 9

In the IS-MP analysis in the Fed model, a decrease in net exports will shift the:

Accepted Answer

A) MP curve up. 
B) MP curve down. 
C) IS curve to the left. 
D) IS curve to the right.

Question 10

If the government lowers corporate taxes, which of the following graphs correctly represents the effect on the IS curve?

Accepted Answer

A) 
 
B) 
 
C) 
 
D)

Question 11

Consumers receive more disposable income. Analyze this shock graphically, and explain using the Fed model.

Accepted Answer

The answer of Consumers receive more disposable income. Analyze this...

Question 12

The economy shown here begins at a 0% output gap. Now suppose that manufacturers in China face rising costs of rubber as an input. This leads to:

Accepted Answer

A) unexpected inflation of -1%. 
B) an unchanged real interest rate. 
C) a new output gap of -6%. 
D) a new real interest rate of 4%.

Question 13

Once you have identified the point of equilibrium in the IS-MP graph in the Fed model, the vertical axis will show you the:

Accepted Answer

A) actual inflation. 
B) unexpected inflation. 
C) output gap. 
D) equilibrium real interest rate.

Question 14

If a spending shock reduces aggregate expenditure by $40 billion and the multiplier is 2, then the IS curve will shift:

Accepted Answer

A) right by $80 billion. 
B) right by $40 billion. 
C) left by $80 billion. 
D) left by $40 billion.

Question 15

In the IS-MP analysis in the Fed model, a rise in the risk-free rate shifts the:

Accepted Answer

A) IS curve to the left. 
B) IS curve to the right. 
C) MP curve up. 
D) MP curve down.

Question 16

Classify the following as a financial shock, a spending shock, or a supply shock.
(a) The U.S. dollar depreciates.
(b) Tariffs raise the price of steel.
(c) The stock market booms.
(d) Liquidity risk increases.

Accepted Answer

The answer of Classify the following as a financial shock,...

Question 17

In the IS-MP analysis in the Fed model, a rise in the interest rate causes a:

Accepted Answer

A) movement to the left along the IS curve. 
B) right shift of the IS curve. 
C) left shift of the IS curve. 
D) movement to the right along the IS curve.

Question 18

Which of the following graphs correctly represents the effect on the Phillips curve if there is widespread production technology improvement in Bangladesh?

Accepted Answer

A) 
 
B) 
 
C) 
 
D)

Question 19

In the IS-MP analysis in the Fed model, a fall in investment will shift the:

Accepted Answer

A) IS curve to the left. 
B) IS curve to the right. 
C) MP curve up. 
D) MP curve down.

Question 20

When using the Fed model to diagnose the economy, if inflation rises even though the economy is weak or if it falls even though the economy is strong, then the economy has been hit by _____ shock.

Accepted Answer

A) an inflation 
B) a financial 
C) a supply 
D) a spending

Exam 32: The Fed Model: Linking Interest Rates, Output, and Inflation

Graphically depict how spending shocks affect the IS curve.

The economy shown here begins at a 0% output gap. Now suppose that manufacturers in China face rising costs of rubber as an input. This leads to:

Tariffs on inputs lead to a _____ shock.

The 1973 OPEC oil embargo is an example of a negative _____ shock to the U.S. economy.

Take a look at the IS-MP-PC model shown here. If a spending shock causes the IS curve to shift right until the output gap is 0%, what will the new equilibrium real interest rate be?

If the Canadian dollar depreciates, which of the following graphs correctly represents the effect on the IS curve in Canada?

The Fed model combines the ___ curve, the _ curve, and the __ curve to link interest rates, the output gap, and inflation.

You are an economic adviser using the Fed model to analyze the economy. What is the effect of a rise in the risk premium in the economy?

In the IS-MP analysis in the Fed model, a decrease in net exports will shift the:

If the government lowers corporate taxes, which of the following graphs correctly represents the effect on the IS curve?

Consumers receive more disposable income. Analyze this shock graphically, and explain using the Fed model.

The economy shown here begins at a 0% output gap. Now suppose that manufacturers in China face rising costs of rubber as an input. This leads to:

Once you have identified the point of equilibrium in the IS-MP graph in the Fed model, the vertical axis will show you the:

If a spending shock reduces aggregate expenditure by $40 billion and the multiplier is 2, then the IS curve will shift:

In the IS-MP analysis in the Fed model, a rise in the risk-free rate shifts the:

Classify the following as a financial shock, a spending shock, or a supply shock. (a) The U.S. dollar depreciates. (b) Tariffs raise the price of steel. (c) The stock market booms. (d) Liquidity risk increases.

In the IS-MP analysis in the Fed model, a rise in the interest rate causes a:

Which of the following graphs correctly represents the effect on the Phillips curve if there is widespread production technology improvement in Bangladesh?

In the IS-MP analysis in the Fed model, a fall in investment will shift the:

When using the Fed model to diagnose the economy, if inflation rises even though the economy is weak or if it falls even though the economy is strong, then the economy has been hit by _____ shock.