Question 1

In the Keynesian-cross analysis, assume that the analysis of taxes is changed so that taxes, T, are made a function of income, as in T = T + tY, where T and t are parameters of the tax
Code and t is positive but less than 1. As compared to a case where t is zero, the multiplier for government purchases in this case will:

Accepted Answer

A)  not change.
B)  be smaller.
C)  be bigger.
D)  be equal to 1.E) A) and B)
F) B) and D)

Question 2

Compare how equilibrium is attained in the market for goods and services versus the market for real-money balances. (Hint: Explain what force moves the market back to equilibrium if the market is initially in disequilibrium.)

Accepted Answer

In the market for goods and services if ...

Question 3

An increase in government spending generally shifts the IS curve, drawn with income along the horizontal axis and the interest rate along the vertical axis:

Accepted Answer

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

Question 4

Explain why a decrease in planned investment, which is a change in the goods market, will upset the equilibrium in the money market.

Accepted Answer

A decrease in planned investment spending decreases planned spending, which will reduce the equilibrium level of income in the goods market. A decrease in income decreases the demand for real money balances in the money market, which will decrease the equilibrium level of the interest rate in the money market. Graphically this is represented by a shift in the IS curve to the left and a movement down the
LM curve.

Question 5

The equilibrium condition in the Keynesian-cross analysis in a closed economy is:

Accepted Answer

A)  income equals consumption plus investment plus government spending.
B)  planned expenditure equals consumption plus planned investment plus government spending.
C)  actual expenditure equals planned expenditure.
D)  actual saving equals actual investment.E) A) and D)
F) B) and D)

Question 6

The IS curve generally determines:

Accepted Answer

A)  income.
B)  the interest rate.
C)  both income and the interest rate.
D)  neither income nor the interest rate.E) A) and D)
F) A) and C)

Question 7

An LM curve shows combinations of:

Accepted Answer

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

Question 8

After the Kennedy tax cut in 1964, real GDP:

Accepted Answer

A)  fell and unemployment rose.
B)  rose and unemployment fell.
C)  and unemployment both rose.
D)  and unemployment both fell.E) A) and C)
F) B) and C)

Question 9

In the Keynesian-cross model, what adjusts to move the economy to equilibrium following a change in exogenous planned spending?

Accepted Answer

A)  planned spending.
B)  the interest rate.
C)  production.
D)  the price level.E) B) and D)
F) B) and C)

Question 10

According to the theory of liquidity preference, holding the supply of real money balances constant, an increase in income will the demand for real money balances and will the interest rate.

Accepted Answer

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

Question 11

The tax multiplier indicates how much change(s)  in response to a $1 change in taxes.

Accepted Answer

A)  the budget deficit
B)  consumption
C)  income
D)  real balancesE) A) and B)
F) None of the above

Question 12

The IS and LM curves together generally determine:

Accepted Answer

A)  income only.
B)  the interest rate only.
C)  both income and the interest rate.
D)  income, the interest rate, and the price level.E) A) and B)
F) All of the above

Question 13

With planned expenditure and the equilibrium condition Y = PE drawn on a graph with income along the horizontal axis, if income exceeds expenditure, then income is to the of equilibrium income and there is unplanned inventory .

Accepted Answer

A)  right; decumulation
B)  right; accumulation
C)  left; decumulation
D)  left; accumulationE) All of the above
F) A) and D)

Question 14

The intersection of the IS and LM curves determines the values of:

Accepted Answer

A)   r, Y, and P, given G, T, and M.
B)   r, Y, and M, given G, T, and P.
C)   r and Y, given G, T, M, and P.
D)   p and Y, given G, T, and M.E) B) and D)
F) B) and C)

Question 15

Two interpretations of the IS-LM model are that the model explains:

Accepted Answer

A)  the determination of income in the short run when prices are fixed or what shifts the aggregate demand curve.
B)  the short-run quantity theory of income or the short-run Fisher effect.
C)  the determination of investment and saving or what shifts the liquidity preference schedule.
D)  changes government spending and taxes or the determination of the supply of real money balances.E) A) and D)
F) All of the above

Question 16

The IS curve shifts when all of the following economic variables change except:

Accepted Answer

A)  the interest rate.
B)  government spending.
C)  tax rates.
D)  the marginal propensity to consume.E) B) and C)
F) None of the above A

Question 17

According to classical theory, national income depends on , while Keynes proposed that determined the level of national income.

Accepted Answer

A)  aggregate demand; aggregate supply
B)  aggregate supply; aggregate demand
C)  monetary policy; fiscal policy
D)  fiscal policy; monetary policyE) All of the above
F) None of the above

Question 18

The theory of liquidity preference implies that:

Accepted Answer

A)  as the interest rate rises, the demand for real balances will fall.
B)  as the interest rate rises, the demand for real balances will rise.
C)  the interest rate will have no effect on the demand for real balances.
D)  as the interest rate rises, income will rise.E) A) and B)
F) None of the above

Question 19

In the Keynesian cross model, actual expenditures differ from planned expenditures by the amount of:

Accepted Answer

A)  liquidity preference.
B)  the government-purchases multiplier.
C)  unplanned inventory investment.
D)  real money balances.E) A) and D)
F) A) and C)

Question 20

An explanation for the slope of the IS curve is that as the interest rate increases, the quantity of investment , and this shifts the expenditure function , thereby decreasing income.

Accepted Answer

A)  increases; downward
B)  increases; upward
C)  decreases; upward
D)  decreases; downwardE) B) and C)
F) B) and D)

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

Correct Answer
verified

Compare how equilibrium is attained in the market for goods and services versus the market for real-money balances. (Hint: Explain what force moves the market back to equilibrium if the market is initially in disequilibrium.)

Correct Answer
verified
In the market for goods and services if ...
View Answer

An increase in government spending generally shifts the IS curve, drawn with income along the horizontal axis and the interest rate along the vertical axis:

Correct Answer
verified

Explain why a decrease in planned investment, which is a change in the goods market, will upset the equilibrium in the money market.

The equilibrium condition in the Keynesian-cross analysis in a closed economy is:

Correct Answer
verified

The IS curve generally determines:

Correct Answer
verified

An LM curve shows combinations of:

Correct Answer
verified

After the Kennedy tax cut in 1964, real GDP:

Correct Answer
verified

In the Keynesian-cross model, what adjusts to move the economy to equilibrium following a change in exogenous planned spending?

Correct Answer
verified

According to the theory of liquidity preference, holding the supply of real money balances constant, an increase in income will the demand for real money balances and will the interest rate.

Correct Answer
verified
A

The tax multiplier indicates how much change(s) in response to a $1 change in taxes.

Correct Answer
verified

The IS and LM curves together generally determine:

Correct Answer
verified

With planned expenditure and the equilibrium condition Y = PE drawn on a graph with income along the horizontal axis, if income exceeds expenditure, then income is to the of equilibrium income and there is unplanned inventory .

Correct Answer
verified

The intersection of the IS and LM curves determines the values of:

Correct Answer
verified

Two interpretations of the IS-LM model are that the model explains:

Correct Answer
verified

The IS curve shifts when all of the following economic variables change except:

Correct Answer
verified
A

According to classical theory, national income depends on , while Keynes proposed that determined the level of national income.

Correct Answer
verified

The theory of liquidity preference implies that:

Correct Answer
verified

In the Keynesian cross model, actual expenditures differ from planned expenditures by the amount of:

Correct Answer
verified

An explanation for the slope of the IS curve is that as the interest rate increases, the quantity of investment , and this shifts the expenditure function , thereby decreasing income.

Correct Answer
verified

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

Correct AnswerverifiedShow Answer

Compare how equilibrium is attained in the market for goods and services versus the market for real-money balances. (Hint: Explain what force moves the market back to equilibrium if the market is initially in disequilibrium.)

Correct AnswerverifiedIn the market for goods and services if ...View AnswerShow Answer

An increase in government spending generally shifts the IS curve, drawn with income along the horizontal axis and the interest rate along the vertical axis:

Correct AnswerverifiedShow Answer

Explain why a decrease in planned investment, which is a change in the goods market, will upset the equilibrium in the money market.

The equilibrium condition in the Keynesian-cross analysis in a closed economy is:

Correct AnswerverifiedShow Answer

The IS curve generally determines:

Correct AnswerverifiedShow Answer

An LM curve shows combinations of:

Correct AnswerverifiedShow Answer

After the Kennedy tax cut in 1964, real GDP:

Correct AnswerverifiedShow Answer

In the Keynesian-cross model, what adjusts to move the economy to equilibrium following a change in exogenous planned spending?

Correct AnswerverifiedShow Answer

According to the theory of liquidity preference, holding the supply of real money balances constant, an increase in income will the demand for real money balances and will the interest rate.

Correct AnswerverifiedA

The tax multiplier indicates how much change(s) in response to a $1 change in taxes.

Correct AnswerverifiedShow Answer

The IS and LM curves together generally determine:

Correct AnswerverifiedShow Answer

With planned expenditure and the equilibrium condition Y = PE drawn on a graph with income along the horizontal axis, if income exceeds expenditure, then income is to the of equilibrium income and there is unplanned inventory .

Correct AnswerverifiedShow Answer

The intersection of the IS and LM curves determines the values of:

Correct AnswerverifiedShow Answer

Two interpretations of the IS-LM model are that the model explains:

Correct AnswerverifiedShow Answer

The IS curve shifts when all of the following economic variables change except:

Correct AnswerverifiedA

According to classical theory, national income depends on , while Keynes proposed that determined the level of national income.

Correct AnswerverifiedShow Answer

The theory of liquidity preference implies that:

Correct AnswerverifiedShow Answer

In the Keynesian cross model, actual expenditures differ from planned expenditures by the amount of:

Correct AnswerverifiedShow Answer

An explanation for the slope of the IS curve is that as the interest rate increases, the quantity of investment , and this shifts the expenditure function , thereby decreasing income.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified
In the market for goods and services if ...
View Answer

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