Question 1

Which of the following will shift IS curve down and to the left?

Accepted Answer

A) an increase in expected future output 
B) a decrease in expected future marginal product of capital 
C) a fall in taxes 
D) an increase in wealth

Question 2

Suppose the economy is initially in long-run equilibrium.For each of the shocks listed below,explain the short-run effects on output and the price level.
a.A stock market crash reduces consumers' wealth.
b.Businesses decide to hold larger inventories.
c.The government cuts defense spending.
d.Foreign countries buy more Canadian goods.

Accepted Answer

The answer of Suppose the economy is initially in long-run...

Question 3

Suppose the intersection of the IS and LM curves is to the right of the FE line.What would most likely eliminate a disequilibrium among the asset,labour,and goods markets?

Accepted Answer

A) a rise in the price level,shifting the LM curve up 
B) a fall in the price level,shifting the LM curve down 
C) a rise in the price level,shifting the IS curve up 
D) a fall in the price level,shifting the IS curve down

Question 4

A change that increases real money demand relative to the real money supply causes

Accepted Answer

A) the LM curve to shift down. 
B) the LM curve to shift up. 
C) the IS curve to shift down. 
D) the IS curve to shift up.

Question 5

The FE line is vertical because the level of output at full employment doesn't depend on the

Accepted Answer

A) real wage rate. 
B) level of employment. 
C) marginal product of labour. 
D) real interest rate.

Question 6

A temporary decline in government purchases would shift the IS curve ________ and the LM curve ________.

Accepted Answer

A) down;is unchanged 
B) down;left 
C) up;is unchanged 
D) up;left

Question 7

Any change that reduces desired saving relative to desired investment (for a given level of output)causes the real interest rate to ________ and shifts the IS curve ________.

Accepted Answer

A) increase;down 
B) increase;up 
C) decrease;down 
D) decrease;up

Question 8

An increase in the expected future marginal product of capital,MPK,

Accepted Answer

A) shifts FE to the right. 
B) shifts IS to the right. 
C) shifts LM to the right. 
D) shifts FE to the left.

Question 9

Classical economists argue that an increase in government expenditures will

Accepted Answer

A) shift FE line to right increasing full-employment output. 
B) shift FE line to left decreasing full-employment output. 
C) shift FE line to right increasing interest rate. 
D) shift FE line to right decreasing labour supply.

Question 10

An adverse supply shock to the economy would

Accepted Answer

A) decrease investment and raise the real interest rate whether the shock were temporary or permanent. 
B) decrease investment,but might not raise the real interest rate if the shock were permanent. 
C) decrease investment,but might not raise the real interest rate if the shock were temporary. 
D) decrease investment,but definitely not raise the real interest rate.

Question 11

Which of the following would shift the FE line to the left?

Accepted Answer

A) a beneficial supply shock 
B) a decrease in labour supply 
C) an increase in the capital stock 
D) a decrease in the future marginal productivity of capital

Question 12

An increase in money demand causes the real interest rate to ________ and output to ________ in the short run,before prices adjust to restore equilibrium.

Accepted Answer

A) rise;rise 
B) rise;fall 
C) fall;rise 
D) fall;fall

Question 13

When all markets in the economy are simultaneously in equilibrium,we say

Accepted Answer

A) markets are complete. 
B) markets are perfect. 
C) there is disequilibrium. 
D) there is general equilibrium.

Question 14

An adverse supply shock that is permanent shifts which curve in addition to the curves shifted by one that is temporary?

Accepted Answer

A) the LM curve 
B) the IS curve 
C) the FE line 
D) the labour demand curve

Question 15

You have just read that Australia has suffered a drought,destroying its wheat crop for this year.The effect of this adverse supply shock on Australia would probably be

Accepted Answer

A) an increase in prices and an increase in real interest rates. 
B) an increase in prices,an increase in nominal interest rates,but a decrease in real interest rates. 
C) a decrease in prices and a decrease in real interest rates. 
D) a decrease in prices,a decrease in nominal interest rates,but an increase in real interest rates.

Question 16

The crowding-out effect occurs when

Accepted Answer

A) an expansion of the government's budget raises the interest rate. 
B) a contraction of the government's budget raises the interest rate. 
C) an expansionary monetary policy decreases the interest rate. 
D) a contractionary monetary policy increases the interest rate.

Question 17

Using an IS-LM graph,illustrate the effects of an increase in the price level on output.Explain what effects the rise in price has on real money,interest rate,and investment.

Accepted Answer

The answer of Using an IS-LM graph,illustrate the effects of...

Question 18

Suppose that the following IS-LM model represents the ATA economy.
Y = Cᵈ + Iᵈ + G
Cᵈ = 180 + 0.7 (Y - T)
Iᵈ = 100 - 18r - 0.1Y
T = 400
G = 400
M/P = L
L = 6Y - 120i
M = 5400
Assume expected inflation is zero and P = 1.
a.Find the equation for the IS curve.
b.Find the equation for the LM curve.
c.Find the equilibrium values for output and the interest rate.
d.At this equilibrium,what is the level of consumption and investment?
e.If government purchases (G)increases to $410,find the new equilibrium values for output and the interest rate.
f.What are the effects of the fiscal expansion above on consumption and investment?

Accepted Answer

The answer of Suppose that the following IS-LM model represents...

Question 19

Which of the following changes shifts the AD curve to the left?

Accepted Answer

A) a decline in the nominal money supply 
B) a decrease in income taxes 
C) a decrease in the risk on nonmonetary assets 
D) an increase in the future marginal productivity of capital

Question 20

An increase in wealth

Accepted Answer

A) increases real money demand and the real interest rate,and shifts the LM curve up. 
B) decreases real money demand and the real interest rate,and shifts the LM curve down. 
C) increases real money demand and the real interest rate,but does not shift the LM curve. 
D) decreases real money demand and the real interest rate,but does not shift the LM curve down.

Exam 9: The Is-Lm-Fe Model: a General Framework for Macroeconomic Analysis

Which of the following will shift IS curve down and to the left?

Suppose the intersection of the IS and LM curves is to the right of the FE line.What would most likely eliminate a disequilibrium among the asset,labour,and goods markets?

A change that increases real money demand relative to the real money supply causes

The FE line is vertical because the level of output at full employment doesn't depend on the

A temporary decline in government purchases would shift the IS curve and the LM curve .

Any change that reduces desired saving relative to desired investment (for a given level of output) causes the real interest rate to and shifts the IS curve .

An increase in the expected future marginal product of capital,MPK,

Classical economists argue that an increase in government expenditures will

An adverse supply shock to the economy would

Which of the following would shift the FE line to the left?

An increase in money demand causes the real interest rate to and output to in the short run,before prices adjust to restore equilibrium.

When all markets in the economy are simultaneously in equilibrium,we say

An adverse supply shock that is permanent shifts which curve in addition to the curves shifted by one that is temporary?

You have just read that Australia has suffered a drought,destroying its wheat crop for this year.The effect of this adverse supply shock on Australia would probably be

The crowding-out effect occurs when

Using an IS-LM graph,illustrate the effects of an increase in the price level on output.Explain what effects the rise in price has on real money,interest rate,and investment.

Which of the following changes shifts the AD curve to the left?

An increase in wealth

Exam 9: The Is-Lm-Fe Model: a General Framework for Macroeconomic Analysis

Which of the following will shift IS curve down and to the left?

Suppose the intersection of the IS and LM curves is to the right of the FE line.What would most likely eliminate a disequilibrium among the asset,labour,and goods markets?

A change that increases real money demand relative to the real money supply causes

The FE line is vertical because the level of output at full employment doesn't depend on the

A temporary decline in government purchases would shift the IS curve ________ and the LM curve ________.

Any change that reduces desired saving relative to desired investment (for a given level of output) causes the real interest rate to ________ and shifts the IS curve ________.

An increase in the expected future marginal product of capital,MPK,

Classical economists argue that an increase in government expenditures will

An adverse supply shock to the economy would

Which of the following would shift the FE line to the left?

An increase in money demand causes the real interest rate to ________ and output to ________ in the short run,before prices adjust to restore equilibrium.

When all markets in the economy are simultaneously in equilibrium,we say

An adverse supply shock that is permanent shifts which curve in addition to the curves shifted by one that is temporary?

You have just read that Australia has suffered a drought,destroying its wheat crop for this year.The effect of this adverse supply shock on Australia would probably be

The crowding-out effect occurs when

Using an IS-LM graph,illustrate the effects of an increase in the price level on output.Explain what effects the rise in price has on real money,interest rate,and investment.

Which of the following changes shifts the AD curve to the left?

An increase in wealth

A temporary decline in government purchases would shift the IS curve and the LM curve .

Any change that reduces desired saving relative to desired investment (for a given level of output) causes the real interest rate to and shifts the IS curve .

An increase in money demand causes the real interest rate to and output to in the short run,before prices adjust to restore equilibrium.