Question 1

An increase in the money supply must cause which of the following?

Accepted Answer

A)  a leftward shift in the IS curve
B)  a reduction in the interest rate and ambiguous effects on investment
C)  an increase in investment and a rightward shift in the IS curve
D)  no change in the interest rate if investment is independent of the interest rate
E)  no change in output if investment is independent of the interest rateF) D) and E)
G) B) and E)

Question 2

Use the IS-LM model to answer this question.Suppose there is a simultaneous increase in taxes and reduction in the money supply.Explain what effect this particular policy mix will have on output and the interest rate.Based on your analysis,do we know with certainty what effect this policy mix will have on investment? Explain.

Accepted Answer

In this case,the LM curve shifts up and ...

Question 3

We know with certainty that a tax increase must cause which of the following?

Accepted Answer

A)  an increase in investment
B)  a reduction in investment
C)  no change in investment
D)  none of the aboveE) A) and B)
F) A) and C)

Question 4

What is the IS relation? Explain why IS curve is downward sloping.

Accepted Answer

The IS relation shows the combinations o...

Question 5

A Fed purchase of securities will most likely have which of the following effects?

Accepted Answer

A)  a rightward shift in the IS curve
B)  a leftward shift in the IS curve
C)  an upward shift in the LM curve
D)  a downward shift in the LM curveE) B) and C)
F) A) and C)

Question 6

Suppose the economy is currently operating on both the LM curve and the IS curve.Which of the following is true for this economy?

Accepted Answer

A)  Production equals demand.
B)  The quantity supplied of bonds equals the quantity demanded of bonds.
C)  The money supply equals money demand.
D)  Financial markets are in equilibrium.
E)  all of the aboveF) A) and B)
G) D) and E)

Question 7

Which of the following best defines the LM curve?

Accepted Answer

A)  the combinations of i and Y that maintain equilibrium in the goods market
B)  illustrates the effects of changes in i on investment
C)  illustrates the effects of changes in i on desired money holdings by individuals
D)  the combinations of i and Y that maintain equilibrium in financial marketsE) A) and B)
F) B) and D)

Question 8

First,briefly explain what is meant by the policy mix.Second,explain what effect different policy mixes might have on the level of output,investment,and the interest rate.

Accepted Answer

The policy mix refers to the possible co...

Question 9

A reduction in the aggregate price level,P,will most likely have which of the following effects?

Accepted Answer

A)  a rightward shift in the IS curve
B)  a leftward shift in the IS curve
C)  an upward shift in the LM curve
D)  a downward shift in the LM curveE) A) and B)
F) A) and C)

Question 10

Which of the following best defines the IS curve?

Accepted Answer

A)  the combinations of i and Y that maintain equilibrium in the goods market
B)  illustrates the effects of changes in i on investment
C)  illustrates the effects of changes in i on desired money holdings by individuals
D)  the combinations of i and Y that maintain equilibrium in financial marketsE) A) and D)
F) A) and C)

Question 11

Which of the following occurs as the economy moves rightward along a given IS curve?

Accepted Answer

A)  a reduction in the interest rate causes investment spending to decrease.
B)  a reduction in the interest rate causes money demand to increase.
C)  a reduction in the interest rate causes a reduction in the money supply.
D)  an increase in government spending causes a reduction in demand for goods.
E)  a reduction in taxes causes a reduction in demand for goods.F) A) and D)
G) All of the above

Question 12

The LM curve shifts down (or,equivalently,to the right) when which of the following occurs?

Accepted Answer

A)  an increase in taxes
B)  an increase in output
C)  an open market sale of bonds by the central bank
D)  an increase in consumer confidence
E)  none of the aboveF) B) and D)
G) A) and C)

Question 13

Suppose there is a simultaneous Fed sale of bonds and increase in consumer confidence.We know with certainty that these two simultaneous events will cause

Accepted Answer

A)  an increase in the interest rate (i) .
B)  a reduction in i.
C)  an increase in output (Y) .
D)  a reduction in Y.E) A) and B)
F) B) and D)

Question 14

Explain in detail what effect a Fed purchase of bonds will have on: (1)the LM curve; and (2)the IS curve.

Accepted Answer

A Fed purchase of bonds will cause an in...

Question 15

Suppose fiscal policy makers implement a policy to reduce the size of a budget deficit.Based on the IS-LM model,we know with certainty that the following will occur as a result of this fiscal policy action.

Accepted Answer

A)  investment spending will decrease.
B)  investment spending will increase.
C)  there will be no change in investment spending.
D)  investment spending may increase,decrease,or not change.
E)  none of the aboveF) A) and B)
G) All of the above

Question 16

During 2008 in the United States,consumer confidence fell significantly.Which of the following will occur as a result of this reduction in consumer confidence?

Accepted Answer

A)  the LM curve will shift up.
B)  the LM curve will shift down.
C)  the IS curve will shift rightward.
D)  the IS curve will shift leftward.
E)  the IS curve will shift rightward,and the LM curve will shift up.F) A) and B)
G) D) and E)

Question 17

For this question,assume that investment spending depends only on the interest rate and no longer depends on output.Given this information,a reduction in the money supply

Accepted Answer

A)  will cause investment to decrease.
B)  will cause investment to increase.
C)  may cause investment to increase or to decrease.
D)  will have no effect on output.
E)  will cause a reduction in output and have no effect on the interest rate.F) A) and D)
G) B) and D)

Question 18

The IS curve represents

Accepted Answer

A)  the single level of output where the goods market is in equilibrium.
B)  the single level of output where financial markets are in equilibrium.
C)  the combinations of output and the interest rate where the money market is in equilibrium.
D)  the combinations of output and the interest rate where the goods market is in equilibrium.
E)  none of the aboveF) A) and B)
G) All of the above

Question 19

A reduction in the reserve deposit ratio,θ,will most likely have which of the following effects?

Accepted Answer

A)  a rightward shift in the IS curve
B)  a leftward shift in the IS curve
C)  an upward shift in the LM curve
D)  a downward shift in the LM curveE) B) and C)
F) A) and D)

Question 20

If government spending and taxes increase by the same amount,

Accepted Answer

A)  the IS curve does not shift
B)  the IS curve shift leftward
C)  the IS curve shifts rightward
D)  the LM curve shifts downwardE) C) and D)
F) B) and D)

Exam 5: Goods and Financial Marketsthe Is-Lm Model

If government spending and taxes increase by the same amount,

Correct Answer
verified

What is the IS relation? Explain why IS curve is downward sloping.

Correct Answer
verified
The IS relation shows the combinations o...
View Answer

Suppose there is a simultaneous Fed sale of bonds and increase in consumer confidence.We know with certainty that these two simultaneous events will cause

Correct Answer
verified

Explain in detail what effect a Fed purchase of bonds will have on: (1)the LM curve; and (2)the IS curve.

Correct Answer
verified
A Fed purchase of bonds will cause an in...
View Answer

We know with certainty that a tax increase must cause which of the following?

Correct Answer
verified

For this question,assume that investment spending depends only on the interest rate and no longer depends on output.Given this information,a reduction in the money supply

Correct Answer
verified

A Fed purchase of securities will most likely have which of the following effects?

Correct Answer
verified

Correct Answer
verified
In this case,the LM curve shifts up and ...
View Answer

Which of the following best defines the IS curve?

Correct Answer
verified

First,briefly explain what is meant by the policy mix.Second,explain what effect different policy mixes might have on the level of output,investment,and the interest rate.

Correct Answer
verified
The policy mix refers to the possible co...
View Answer

Which of the following best defines the LM curve?

Correct Answer
verified

Suppose the economy is currently operating on both the LM curve and the IS curve.Which of the following is true for this economy?

Correct Answer
verified

During 2008 in the United States,consumer confidence fell significantly.Which of the following will occur as a result of this reduction in consumer confidence?

Correct Answer
verified

A reduction in the aggregate price level,P,will most likely have which of the following effects?

Correct Answer
verified

The LM curve shifts down (or,equivalently,to the right) when which of the following occurs?

Correct Answer
verified

Suppose fiscal policy makers implement a policy to reduce the size of a budget deficit.Based on the IS-LM model,we know with certainty that the following will occur as a result of this fiscal policy action.

Correct Answer
verified

A reduction in the reserve deposit ratio,θ,will most likely have which of the following effects?

Correct Answer
verified

The IS curve represents

Correct Answer
verified

Which of the following occurs as the economy moves rightward along a given IS curve?

Correct Answer
verified

An increase in the money supply must cause which of the following?

Correct Answer
verified

Exam 5: Goods and Financial Marketsthe Is-Lm Model

If government spending and taxes increase by the same amount,

Correct AnswerverifiedShow Answer

What is the IS relation? Explain why IS curve is downward sloping.

Correct AnswerverifiedThe IS relation shows the combinations o...View AnswerShow Answer

Suppose there is a simultaneous Fed sale of bonds and increase in consumer confidence.We know with certainty that these two simultaneous events will cause

Correct AnswerverifiedShow Answer

Explain in detail what effect a Fed purchase of bonds will have on: (1)the LM curve; and (2)the IS curve.

Correct AnswerverifiedA Fed purchase of bonds will cause an in...View AnswerShow Answer

We know with certainty that a tax increase must cause which of the following?

Correct AnswerverifiedShow Answer

For this question,assume that investment spending depends only on the interest rate and no longer depends on output.Given this information,a reduction in the money supply

Correct AnswerverifiedShow Answer

A Fed purchase of securities will most likely have which of the following effects?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedIn this case,the LM curve shifts up and ...View AnswerShow Answer

Which of the following best defines the IS curve?

Correct AnswerverifiedShow Answer

First,briefly explain what is meant by the policy mix.Second,explain what effect different policy mixes might have on the level of output,investment,and the interest rate.

Correct AnswerverifiedThe policy mix refers to the possible co...View AnswerShow Answer

Which of the following best defines the LM curve?

Correct AnswerverifiedShow Answer

Suppose the economy is currently operating on both the LM curve and the IS curve.Which of the following is true for this economy?

Correct AnswerverifiedShow Answer

During 2008 in the United States,consumer confidence fell significantly.Which of the following will occur as a result of this reduction in consumer confidence?

Correct AnswerverifiedShow Answer

A reduction in the aggregate price level,P,will most likely have which of the following effects?

Correct AnswerverifiedShow Answer

The LM curve shifts down (or,equivalently,to the right) when which of the following occurs?

Correct AnswerverifiedShow Answer

Suppose fiscal policy makers implement a policy to reduce the size of a budget deficit.Based on the IS-LM model,we know with certainty that the following will occur as a result of this fiscal policy action.

Correct AnswerverifiedShow Answer

A reduction in the reserve deposit ratio,θ,will most likely have which of the following effects?

Correct AnswerverifiedShow Answer

The IS curve represents

Correct AnswerverifiedShow Answer

Which of the following occurs as the economy moves rightward along a given IS curve?

Correct AnswerverifiedShow Answer

An increase in the money supply must cause which of the following?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified
The IS relation shows the combinations o...
View Answer

Correct Answer
verified

Correct Answer
verified
A Fed purchase of bonds will cause an in...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
In this case,the LM curve shifts up and ...
View Answer

Correct Answer
verified

Correct Answer
verified
The policy mix refers to the possible co...
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

Correct Answer
verified

Correct Answer
verified