Question 1

According to the Keynesian-cross analysis, if the marginal propensity to consume is 0.6, and government expenditures and autonomous taxes are both increased by 100, equilibrium income will rise by:

Accepted Answer

A)  0.
B)  100.
C)  150.
D)  250.E) All of the above
F) A) and D)

Question 2

In the Keynesian-cross model, fiscal policy has a multiplier 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.E) B) and C)
F) A) and D)

Question 3

When planned expenditure is drawn on a graph as a function of income, the slope of the line is:

Accepted Answer

A)  zero.
B)  between zero and one.
C)  one.
D)  greater than one.E) C) and D)
F) All of the above

Question 4

Both Keynesians and supply-siders believe a tax cut will lead to growth:

Accepted Answer

A)  and both agree it works through incentive effects.
B)  but Keynesians believe it works through incentive effects whereas supply-siders believe it works through aggregate demand.
C)  but Keynesians believe it works through aggregate demand whereas supply- siders believe it works through incentive effects.
D)  and both agree it works through aggregate demand.E) A) and B)
F) None of the above

Question 5

Along any given IS curve:

Accepted Answer

A)  tax rates are fixed, but government spending varies.
B)  government spending is fixed, but tax rates vary.
C)  both government spending and tax rates vary.
D)  both government spending and tax rates are fixed.E) B) and C)
F) All of the above

Question 6

An IS curve shows combinations of:

Accepted Answer

A)  taxes and government spending.
B)  nominal money balances and price levels.
C)  interest rates and income that bring equilibrium in the market for real balances.
D)  interest rates and income that bring equilibrium in the market for goods and services.E) None of the above
F) A) and D)

Question 7

In the IS-LM model, which two variables are influenced by the interest rate?

Accepted Answer

A)  supply of nominal money balances and demand for real balances
B)  demand for real balances and government purchases
C)  supply of nominal money balances and investment spending
D)  demand for real money balances and investment spendingE) All of the above
F) A) and B)

Question 8

According to the theory of liquidity preference, tightening the money supply will nominal interest rates in the short run, and according to the Fisher effect, tightening the money supply will nominal interest rates in the long run.

Accepted Answer

A)  increase; increase
B)  increase; decrease
C)  decrease; decrease
D)  decrease; increaseE) All of the above
F) A) and D)

Question 9

In the Keynesian-cross model, if government purchases increase by 100, then planned expenditures for any given level of income.

Accepted Answer

A)  increase by 100
B)  increase by more than 100
C)  decrease by 100
D)  increase, but by less than 100E) B) and C)
F) All of the above

Question 10

In the Keynesian-cross model, a decrease in the interest rate planned investment spending and the equilibrium level of income.

Accepted Answer

A)  increases; increases
B)  increases; decreases
C)  decreases; decreases
D)  decreases; increasesE) C) and D)
F) A) and C)

Question 11

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 ...

Question 12

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

Accepted Answer

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

Question 13

In the Keynesian-cross model, if taxes are reduced by 250, then the equilibrium level of income:

Accepted Answer

A)  increases by 250.
B)  increases by more than 250.
C)  decreases by 250.
D)  increases, but by less than 250.E) A) and B)
F) C) and D)

Question 14

Changes in monetary policy shift the:

Accepted Answer

A)  LM curve.
B)  planned spending curve.
C)  money demand curve.
D)  IS curve.E) B) and C)
F) A) and D)

Question 15

When drawn on a graph with income along the horizontal axis and the interest rate along the vertical axis, the IS curve generally:

Accepted Answer

A)  is vertical.
B)  is horizontal.
C)  slopes upward and to the right.
D)  slopes downward and to the right.E) C) and D)
F) All of the above

Question 16

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.E) B) and C)
F) C) and D)

Question 17

Two identical countries, Country A and Country B, can each be described by a Keynesian-cross model. The MPC is 0.9 in each country. Country A decides to increase spending by $2 billion, while Country B decides to cut taxes by $2 billion. In which country will the new equilibrium level of income be greater?

Accepted Answer

Income in Country A will increase more. ...

Question 18

In the Keynesian-cross model, the equilibrium level of income is determined by:

Accepted Answer

A)  the factors of production.
B)  the money supply.
C)  planned spending.
D)  liquidity preference.E) B) and C)
F) All of the above

Question 19

A decrease in the price level, holding nominal money supply constant, will shift the LM curve:

Accepted Answer

A)  upward and to the right.
B)  downward and to the right.
C)  downward and to the left.
D)  upward and to the left.E) None of the above
F) All of the above

Question 20

The Keynesian-cross analysis assumes that planned investment:

Accepted Answer

A)  is fixed and so does the IS analysis.
B)  depends on the interest rate and so does the IS analysis.
C)  is fixed, whereas the IS analysis assumes it depends on the interest rate.
D)  depends on expenditure and so does the IS analysis.E) A) and B)
F) A) and C)

Exam 10: Aggregate Demand I: Building the Is-Lm Model

Changes in monetary policy shift the:

Correct Answer
verified

In the Keynesian-cross model, the equilibrium level of income is determined by:

Correct Answer
verified

In the Keynesian-cross model, if government purchases increase by 100, then planned expenditures for any given level of income.

Correct Answer
verified

In the Keynesian-cross model, a decrease in the interest rate planned investment spending and the equilibrium level of income.

Correct Answer
verified

When drawn on a graph with income along the horizontal axis and the interest rate along the vertical axis, the IS curve generally:

Correct Answer
verified

In the IS-LM model, which two variables are influenced by the interest rate?

Correct Answer
verified

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

Correct Answer
verified

In the Keynesian-cross model, if taxes are reduced by 250, then the equilibrium level of income:

Correct Answer
verified

Correct Answer
verified
Income in Country A will increase more. ...
View Answer

According to the theory of liquidity preference, tightening the money supply will nominal interest rates in the short run, and according to the Fisher effect, tightening the money supply will nominal interest rates in the long run.

Correct Answer
verified

When planned expenditure is drawn on a graph as a function of income, the slope of the line is:

Correct Answer
verified

An IS curve shows combinations of:

Correct Answer
verified

According to the Keynesian-cross analysis, if the marginal propensity to consume is 0.6, and government expenditures and autonomous taxes are both increased by 100, equilibrium income will rise by:

Correct Answer
verified

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:

Correct Answer
verified

Both Keynesians and supply-siders believe a tax cut will lead to growth:

Correct Answer
verified

Along any given IS curve:

Correct Answer
verified

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?

Correct Answer
verified
The liquidity preference model predicts ...
View Answer

A decrease in the price level, holding nominal money supply constant, will shift the LM curve:

Correct Answer
verified

The Keynesian-cross analysis assumes that planned investment:

Correct Answer
verified

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

Correct Answer
verified

Exam 10: Aggregate Demand I: Building the Is-Lm Model

Changes in monetary policy shift the:

Correct AnswerverifiedShow Answer

In the Keynesian-cross model, the equilibrium level of income is determined by:

Correct AnswerverifiedShow Answer

In the Keynesian-cross model, if government purchases increase by 100, then planned expenditures for any given level of income.

Correct AnswerverifiedShow Answer

In the Keynesian-cross model, a decrease in the interest rate planned investment spending and the equilibrium level of income.

Correct AnswerverifiedShow Answer

When drawn on a graph with income along the horizontal axis and the interest rate along the vertical axis, the IS curve generally:

Correct AnswerverifiedShow Answer

In the IS-LM model, which two variables are influenced by the interest rate?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In the Keynesian-cross model, if taxes are reduced by 250, then the equilibrium level of income:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedIncome in Country A will increase more. ...View AnswerShow Answer

According to the theory of liquidity preference, tightening the money supply will nominal interest rates in the short run, and according to the Fisher effect, tightening the money supply will nominal interest rates in the long run.

Correct AnswerverifiedShow Answer

When planned expenditure is drawn on a graph as a function of income, the slope of the line is:

Correct AnswerverifiedShow Answer

An IS curve shows combinations of:

Correct AnswerverifiedShow Answer

According to the Keynesian-cross analysis, if the marginal propensity to consume is 0.6, and government expenditures and autonomous taxes are both increased by 100, equilibrium income will rise by:

Correct AnswerverifiedShow Answer

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:

Correct AnswerverifiedShow Answer

Both Keynesians and supply-siders believe a tax cut will lead to growth:

Correct AnswerverifiedShow Answer

Along any given IS curve:

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedThe liquidity preference model predicts ...View AnswerShow Answer

A decrease in the price level, holding nominal money supply constant, will shift the LM curve:

Correct AnswerverifiedShow Answer

The Keynesian-cross analysis assumes that planned investment:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Income in Country A will increase more. ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The liquidity preference model predicts ...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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