Question 1

Figure 4-4
 
-In Figure 4-4 above,if the interest rate falls from 10% to 7.5% and this causes businesses to become more optimistic about future investment conditions,we would observe that planned investment would

Accepted Answer

A)  decrease from B to C to D.
B)  increase from B to C to D.
C)  increase from B to C to F.
D)  decrease from B to C to F.E) All of the above
F) B) and C)

Question 2

If a given fiscal policy is fully accommodated by monetary policy,then

Accepted Answer

A)  GDP will remain constant.
B)  the interest rate will remain constant.
C)  GDP and the interest rate will move in the same direction.
D)  GDP and the interest rate will move in the opposite direction.E) C) and D)
F) A) and B)

Question 3

When the marginal propensity to save declines,the

Accepted Answer

A)  multiplier becomes larger and the IS curve becomes flatter.
B)  marginal propensity to consume increases and there is no effect on the IS curve.
C)  multiplier becomes larger and the IS curve becomes steeper.
D)  multiplier declines and the IS curve becomes steeper.E) None of the above
F) A) and B)

Question 4

Figure 4-3
 
-Employing Figure 4-3 above,the initial equilibrium is point D and government expenditures increase by ________ shifting the IS curve from IS₀ to IS₁ and crowding out is approximately ________.

Accepted Answer

A)  500,500
B)  250,500
C)  1000,1000
D)  1000,250E) None of the above
F) A) and B)

Question 5

When (if at all) can the crowding-out effect be prevented?

Accepted Answer

A)  when the Fed decreases the money supply to accommodate the expansionary fiscal policy
B)  when the real money supply is held constant
C)  when the real balance effect is working
D)  when the Fed allows the real money supply to increase sufficiently to keep the interest rate from risingE) A) and B)
F) A) and C)

Question 6

If the Fed's goal is to hold income constant,an expansionary fiscal policy must be accompanied by ________ monetary policy,and the Fed must allow the interest rate to ________ significantly.

Accepted Answer

A)  an expansionary,rise
B)  an expansionary,fall
C)  a contractionary,rise
D)  a contractionary,fallE) None of the above
F) A) and C)

Question 7

We can infer that the government is following a restrictive fiscal policy when

Accepted Answer

A)  the actual deficit falls.
B)  the natural employment deficit falls.
C)  the actual deficit rises.
D)  the natural employment deficit rises.E) B) and D)
F) B) and C)

Question 8

A higher nominal money supply is equally demanded,given each level of income,at a ________ interest rate,meaning that the LM curve has shifted to the ________.

Accepted Answer

A)  higher,left
B)  higher,right
C)  lower,left
D)  lower,rightE) C) and D)
F) A) and B)

Question 9

Figure 4-6
 
-In Figure 4-6 above,with IS₀ shifting to IS₁,movement from points 0 to 2 requires the real money supply to ________.

Accepted Answer

A)  rise by the same percentage as income
B)  fall by the same percentage as income
C)  remain constant
D)  none of the aboveE) A) and B)
F) A) and C)

Question 10

In a liquidity trap,the

Accepted Answer

A)  IS curve is vertical.
B)  IS curve is horizontal.
C)  LM curve is vertical.
D)  LM curve is horizontal.E) C) and D)
F) A) and B)

Question 11

In the IS-LM diagram,we are in "general equilibrium"

Accepted Answer

A)  at all points.
B)  at all points on the LM curve.
C)  at all points on the IS curve.
D)  only at the intersection of the IS and LM curves.E) All of the above
F) C) and D)

Question 12

The LM curve is the set of combinations of ________ such that ________.

Accepted Answer

A)  interest rates and real money balances,real income equals real money balances times (1/r) 
B)  interest rates and real money balances,the money supply is equally demanded
C)  real income and real money balances,the production of output is equally demanded
D)  real income and interest rates,the production of output is equally demanded
E)  real income and interest rates,the money supply is equally demandedF) C) and E)
G) None of the above

Question 13

If there is unplanned inventory decumulation there is excess

Accepted Answer

A)  demand for bonds.
B)  supply of bonds.
C)  demand for commodities.
D)  supply of commodities.E) None of the above
F) A) and C)

Question 14

Suppose the government increases its expenditures by $100 billion and simultaneously reduces the money supply by $100 billion.We definitely know that

Accepted Answer

A)  equilibrium GDP will fall.
B)  equilibrium GDP will rise.
C)  the interest rate will rise.
D)  the interest rate will fall.E) B) and C)
F) None of the above

Question 15

Monetary policy loses its effectiveness in all of the following situations EXCEPT

Accepted Answer

A)  when the IS curve is vertical.
B)  when the LM curve is nearly horizontal.
C)  when interest rate controlled by the Fed reaches zero.
D)  when the IS curve is horizontal.E) A) and C)
F) B) and C)

Question 16

Which of the following statements are true?

Accepted Answer

A)  The smaller the responsiveness of money demand to a change in the interest rate,the steeper the LM curve.
B)  The larger the responsiveness of money demand to a change in the interest rate,the flatter the LM curve.
C)  If money demand is not responsive to a change in the interest rate,the LM curve will be horizontal.
D)  Both A and B.E) B) and D)
F) All of the above

Question 17

Consider an initial IS-LM equilibrium with normally-sloped curves.An increase in government spending takes us to a new equilibrium with ________ income and ________ interest rate.

Accepted Answer

A)  higher,a higher
B)  higher,a lower
C)  an unchanged,a higher
D)  an unchanged,a lower
E)  lower,an unchangedF) B) and E)
G) B) and D)

Question 18

Which of the following statements would be true of an economy that can be characterized as being to the left of the IS curve?

Accepted Answer

A)  There is an excess demand for commodities at the existing interest rate.
B)  There will be a tendency for the level of output to decrease.
C)  There is an excess supply of commodities at the existing interest rate.
D)  There will be a tendency for interest rates to fall.E) A) and C)
F) A) and D)

Question 19

In deriving LM curves,holding the real money supply constant while raising real GDP causes us to

Accepted Answer

A)  trace up along an LM curve.
B)  trace down along an LM curve.
C)  shift the LM curve to the right.
D)  shift the LM curve to the left.E) A) and B)
F) None of the above

Question 20

Suppose that changes in the interest rate have absolutely no effect on the demand for money.The resulting ________ LM curve causes monetary policy to have ________ effect in changing income.

Accepted Answer

A)  horizontal,no
B)  horizontal,an unusually strong
C)  vertical,no
D)  vertical,an unusually strongE) A) and D)
F) A) and C)

Exam 4: Strong and Weak Policy Effects in the Is-Lm Model

Figure 4-3 -Employing Figure 4-3 above,the initial equilibrium is point D and government expenditures increase by ________ shifting the IS curve from IS₀ to IS₁ and crowding out is approximately ________.

Correct AnswerverifiedShow Answer

Suppose the government increases its expenditures by $100 billion and simultaneously reduces the money supply by $100 billion.We definitely know that

Correct AnswerverifiedShow Answer

In a liquidity trap,the

Correct AnswerverifiedShow Answer

Consider an initial IS-LM equilibrium with normally-sloped curves.An increase in government spending takes us to a new equilibrium with ________ income and ________ interest rate.

Correct AnswerverifiedShow Answer

Monetary policy loses its effectiveness in all of the following situations EXCEPT

Correct AnswerverifiedShow Answer

In the IS-LM diagram,we are in "general equilibrium"

Correct AnswerverifiedShow Answer

If the Fed's goal is to hold income constant,an expansionary fiscal policy must be accompanied by ________ monetary policy,and the Fed must allow the interest rate to ________ significantly.

Correct AnswerverifiedShow Answer

If a given fiscal policy is fully accommodated by monetary policy,then

Correct AnswerverifiedShow Answer

Figure 4-4 -In Figure 4-4 above,if the interest rate falls from 10% to 7.5% and this causes businesses to become more optimistic about future investment conditions,we would observe that planned investment would

Correct AnswerverifiedShow Answer

We can infer that the government is following a restrictive fiscal policy when

Correct AnswerverifiedShow Answer

Which of the following statements are true?

Correct AnswerverifiedShow Answer

Suppose that changes in the interest rate have absolutely no effect on the demand for money.The resulting ________ LM curve causes monetary policy to have ________ effect in changing income.

Correct AnswerverifiedShow Answer

If there is unplanned inventory decumulation there is excess

Correct AnswerverifiedShow Answer

A higher nominal money supply is equally demanded,given each level of income,at a ________ interest rate,meaning that the LM curve has shifted to the ________.

Correct AnswerverifiedShow Answer

The LM curve is the set of combinations of ________ such that ________.

Correct AnswerverifiedShow Answer

When the marginal propensity to save declines,the

Correct AnswerverifiedShow Answer

In deriving LM curves,holding the real money supply constant while raising real GDP causes us to

Correct AnswerverifiedShow Answer

Which of the following statements would be true of an economy that can be characterized as being to the left of the IS curve?

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When (if at all) can the crowding-out effect be prevented?

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Figure 4-6 -In Figure 4-6 above,with IS₀ shifting to IS₁,movement from points 0 to 2 requires the real money supply to ________.

Correct AnswerverifiedShow Answer

Figure 4-3 -Employing Figure 4-3 above,the initial equilibrium is point D and government expenditures increase by shifting the IS curve from IS₀ to IS₁ and crowding out is approximately .

Correct Answer
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Consider an initial IS-LM equilibrium with normally-sloped curves.An increase in government spending takes us to a new equilibrium with income and interest rate.

Correct Answer
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If the Fed's goal is to hold income constant,an expansionary fiscal policy must be accompanied by monetary policy,and the Fed must allow the interest rate to significantly.

Correct Answer
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Suppose that changes in the interest rate have absolutely no effect on the demand for money.The resulting LM curve causes monetary policy to have effect in changing income.

Correct Answer
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A higher nominal money supply is equally demanded,given each level of income,at a interest rate,meaning that the LM curve has shifted to the .

Correct Answer
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The LM curve is the set of combinations of such that .

Correct Answer
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Correct Answer
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