Question 1

With a rise in government expenditure we

Accepted Answer

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

Question 2

Which of the following will cause the LM curve to shift to the left?

Accepted Answer

A)   A decrease in investment
B)   A decrease in money demand
C)   An increase in velocity
D)   A decrease in the money supplyE) A) and B)
F) B) and C)

Question 3

Which of the following is an equilibrium condition in the ISLM model?

Accepted Answer

A)   Labor demand = labor supply
B)   Desired investment = desired saving
C)   Government spending = taxation
D)   Money supply = incomeE) All of the above
F) B) and D) B

Question 4

A rising GDP causes __________ the money demand curve.

Accepted Answer

A)   downward movement along
B)   upward movement along
C)   a rightward shift of
D)   a leftward shift ofE) A) and C)
F) B) and D) C

Question 5

Which of the following is an equilibrium condition for the goods market?

Accepted Answer

A)   MV = PQ
B)   Desired expenditure = total production
C)   Money demand = money supply
D)   IS = LME) C) and D)
F) A) and D)

Question 6

In the ISLM framework, monetary policy has the greatest impact on equilibrium income

Accepted Answer

A)   when desired saving = desired saving.
B)   when money supply is infinitely elastic.
C)   the greater is the interest-sensitivity of money demand.
D)   when the interest rate is rising.E) B) and C)
F) None of the above

Question 7

A falling GDP causes __________ the money demand curve.

Accepted Answer

A)   downward movement along
B)   upward movement along
C)   a rightward shift of
D)   a leftward shift ofE) A) and B)
F) A) and D)

Question 8

Assume that you are a policy adviser who believes that money demand is highly interest-sensitive but investment is not. Asked your advice on how to pull the economy out of a recession, you are likely to emphasize

Accepted Answer

A)   contractionary monetary policy.
B)   expansionary monetary policy.
C)   contractionary fiscal policy.
D)   expansionary fiscal policy.E) B) and C)
F) B) and D)

Question 9

In the ISLM framework, monetary policy has the greatest impact on equilibrium income

Accepted Answer

A)   when money demand = money supply.
B)   when money supply is infinitely elastic.
C)   when the interest rate is high.
D)   the less is the interest-sensitivity of money demand.E) All of the above
F) B) and D)

Question 10

In the complete algebraic formulation of ISLM,

Accepted Answer

A)   monetary policy is useless when h is infinite or n is zero.
B)   monetary policy is useless when n is infinite or h is zero.
C)   fiscal policy is useless when h is infinite or n is zero.
D)   both fiscal and monetary policy are useless.E) All of the above
F) A) and C)

Question 11

Any decrease in autonomous spending will

Accepted Answer

A)   shift the IS curve to the left.
B)   shift the IS curve to the right.
C)   cause a movement down along an IS curve.
D)   cause a movement up along an IS curve.E) A) and B)
F) A) and C)

Question 12

Along an IS curve as income levels __________, saving is larger, so the interest rate must be __________ to expand the level of investment so it will be equal to saving.

Accepted Answer

A)   increase; higher
B)   increase; lower
C)   decrease; higher
D)   decrease; lowerE) B) and C)
F) All of the above

Question 13

Assume that the Cambridge k = .20. If income is equal to $100,000, the transactions demand for money is equal to

Accepted Answer

A)   $20,000.
B)   $50,000.
C)   $100,000.
D)   $500,000.E) A) and D)
F) All of the above

Question 14

The steeper the LM curve

Accepted Answer

A)   the more effective is monetary policy.
B)   the less effective is monetary policy.
C)   the greater is the interest-sensitivity of investment.
D)   the greater is the interest-sensitivity of the money supply.E) A) and B)
F) B) and D)

Question 15

Which of the following is an equilibrium condition for the goods market?

Accepted Answer

A)   M = kPQ
B)   Desired saving and desired investment
C)   Money demand = money supply
D)   IS = LME) A) and B)
F) None of the above

Question 16

The IS curve shows a series of equilibrium points in the goods market for various levels of

Accepted Answer

A)   investment and interest rates.
B)   investment and money supply.
C)   income and interest rates.
D)   inflation and unemployment.E) A) and D)
F) A) and B)

Question 17

Starting from equilibrium in the ISLM framework, an increase in money demand results in

Accepted Answer

A)   a rise in income and the interest rate.
B)   a rise in income and a decline in the interest rate.
C)   a decline in income and the interest rate.
D)   a decline in income and a rise in the interest rate.E) None of the above
F) A) and C)

Question 18

Liquidity preference theory indicates that at lower interest rates

Accepted Answer

A)   investment is greater.
B)   money demand is greater.
C)   consumption is greater.
D)   money supply is greater.E) B) and D)
F) None of the above

Question 19

Along an LM curve at higher interest rates there is __________ money demanded, so income must be higher to __________ the demand for transactions balances if the total demand for money is to equal the fixed supply.

Accepted Answer

A)   less; decrease
B)   less; increase
C)   more; decrease
D)   more; increaseE) A) and D)
F) B) and D) B

Question 20

The slope of the IS curve will be steeper the __________ is the sensitivity of investment to a unit change in the interest rate and the __________ is marginal propensity to save.

Accepted Answer

A)   greater; larger
B)   greater; smaller
C)   less; larger
D)   less; smallerE) All of the above
F) B) and D)

Exam 24: The ISLM World

With a rise in government expenditure we

Correct AnswerverifiedShow Answer

Which of the following will cause the LM curve to shift to the left?

Correct AnswerverifiedShow Answer

Which of the following is an equilibrium condition in the ISLM model?

Correct AnswerverifiedB

A rising GDP causes __________ the money demand curve.

Correct AnswerverifiedC

Which of the following is an equilibrium condition for the goods market?

Correct AnswerverifiedShow Answer

In the ISLM framework, monetary policy has the greatest impact on equilibrium income

Correct AnswerverifiedShow Answer

A falling GDP causes __________ the money demand curve.

Correct AnswerverifiedShow Answer

Assume that you are a policy adviser who believes that money demand is highly interest-sensitive but investment is not. Asked your advice on how to pull the economy out of a recession, you are likely to emphasize

Correct AnswerverifiedShow Answer

In the ISLM framework, monetary policy has the greatest impact on equilibrium income

Correct AnswerverifiedShow Answer

In the complete algebraic formulation of ISLM,

Correct AnswerverifiedShow Answer

Any decrease in autonomous spending will

Correct AnswerverifiedShow Answer

Along an IS curve as income levels __________, saving is larger, so the interest rate must be __________ to expand the level of investment so it will be equal to saving.

Correct AnswerverifiedShow Answer

Assume that the Cambridge k = .20. If income is equal to $100,000, the transactions demand for money is equal to

Correct AnswerverifiedShow Answer

The steeper the LM curve

Correct AnswerverifiedShow Answer

Which of the following is an equilibrium condition for the goods market?

Correct AnswerverifiedShow Answer

The IS curve shows a series of equilibrium points in the goods market for various levels of

Correct AnswerverifiedShow Answer

Starting from equilibrium in the ISLM framework, an increase in money demand results in

Correct AnswerverifiedShow Answer

Liquidity preference theory indicates that at lower interest rates

Correct AnswerverifiedShow Answer

Along an LM curve at higher interest rates there is __________ money demanded, so income must be higher to __________ the demand for transactions balances if the total demand for money is to equal the fixed supply.

Correct AnswerverifiedB

The slope of the IS curve will be steeper the __________ is the sensitivity of investment to a unit change in the interest rate and the __________ is marginal propensity to save.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
B

Correct Answer
verified
C

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Along an IS curve as income levels , saving is larger, so the interest rate must be to expand the level of investment so it will be equal to saving.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Along an LM curve at higher interest rates there is money demanded, so income must be higher to the demand for transactions balances if the total demand for money is to equal the fixed supply.

Correct Answer
verified
B

The slope of the IS curve will be steeper the is the sensitivity of investment to a unit change in the interest rate and the is marginal propensity to save.

Correct Answer
verified