Quiz
Chapter 12 - Review
Create a free account to finish this quiz
Save your progress and see your final score.
Already have an account? Sign in
Questions in this quiz (21)
11. (Exhibit: IS–LM Fiscal Policy) Based on the graph, starting from equilibrium at interest rate r1 and income Y1, a decrease in government spending would generate the new equilibrium combination of interest rate and income:
- AA) r2, Y2
- BB) r3, Y2
- CC) r2, Y3
- DD) r3, Y3
22. In the IS–LM model, the impact of an increase in government purchases in the goods market has ramifications in the money market, because the increase in income causes a(n) ______ in money ______.
- AA) increase; supply
- BB) increase; demand
- CC) decrease; supply
- DD) decrease; demand
33. In the IS–LM model when taxation increases, in short-run equilibrium, the interest rate ______ and output ______.
- AA) rises; falls
- BB) rises; rises
- CC) falls; rises
- DD) falls; falls
44. If the LM curve is vertical and government spending rises by G, in the IS–LM analysis, then equilibrium income rises by:
- AA) G/(1 – MPC).
- BB) more than zero but less than G/(1 – MPC).
- CC) G.
- DD) zero.
55. If MPC = 0.75 (and there are no income taxes) when G increases by 100, then the IS curve for any given interest rate shifts to the right by:
- AA) 100.
- BB) 200.
- CC) 300.
- DD) 400.
66. In the IS–LM model, changes in taxes initially affect planned expenditures through:
- AA) consumption.
- BB) investment.
- CC) government spending.
- DD) the interest rate.
77. (Exhibit: IS–LM Monetary Policy) Based on the graph, starting from equilibrium at interest rate r1 and income Y1, a decrease in the money supply would generate the new equilibrium combination of interest rate and income:
- AA) r2, Y2
- BB) r3, Y2
- CC) r2, Y3
- DD) r3, Y3
88. In the IS–LM model when M/P rises, in short-run equilibrium, in the usual case the interest rate ______ and output ______.
- AA) rises; falls
- BB) rises; rises
- CC) falls; rises
- DD) falls; falls
99. If the demand for real money balances does not depend on the interest rate, then the LM curve:
- AA) slopes up to the right.
- BB) slopes down to the right.
- CC) is horizontal.
- DD) is vertical.
1010. The monetary transmission mechanism in the IS–LM model is a process whereby an increase in the money supply increases the demand for goods and services:
- AA) directly.
- BB) by lowering the interest rate so that investment spending increases.
- CC) by raising the interest rate so that investment spending increases.
- DD) by increasing government spending on goods and services.
1111. (Exhibit: Policy Interaction) Based on the graph, starting from equilibrium at interest rate r3, income Y2, IS1, and LM1, if there is an increase in government spending that shifts the IS curve to IS2, then in order to keep the interest rate constant, the Federal Reserve should _____ the money supply shifting to _____.
- AA) increase; LM2
- BB) decrease; LM2
- CC) increase; LM3
- DD) decrease; LM3
1212. An increase in consumer saving for any given level of income will shift the:
- AA) LM curve upward and to the left.
- BB) LM curve downward and to the right.
- CC) IS curve downward and to the left.
- DD) IS curve upward and to the right.
1313. An increase in the demand for money, at any given income level and level of interest rates, will, within the IS–LM framework, ______ output and ______ interest rates.
- AA) increase; lower
- BB) increase; raise
- CC) lower; lower.
- DD) lower; raise
1414. The U.S. recession of 2001 can be explained in part by a declining stock market and terrorist attacks. Both of these shocks can be represented in the IS–LM model by shifting the ______ curve to the ______.
- AA) LM; right
- BB) LM; left
- CC) IS; right
- DD) IS; left
1515. When bond traders for the Federal Reserve seek to increase interest rates, they ______ bonds, which shifts the ______ curve to the left.
- AA) buy; IS
- BB) buy; LM
- CC) sell; IS
- DD) sell; LM
1616. An increase in the money supply shifts the ______ curve to the right, and the aggregate demand curve ______.
- AA) IS; shifts to the right
- BB) IS; does not shift
- CC) LM: shifts to the right
- DD) LM; does not shift
1717. A tax cut shifts the ______ to the right, and the aggregate demand curve ______.
- AA) IS; shifts to the right
- BB) IS; does not shift
- CC) LM: shifts to the right
- DD) LM; does not shift
1818. (Exhibit: IS–LM to Aggregate Demand) Based on the graph, if LM1 shifts to LM2 because the price level decreases from P1 to P2 then, holding other factors constant:
- AA) the aggregate demand curve will shift to the right.
- BB) the aggregate demand curve will shift to the left.
- CC) this represents a movement up the aggregate demand curve.
- DD) this represents a movement down the aggregate demand curve.
1919. (Exhibit: IS–LM to Aggregate Demand) Based on the graph, if LM3 shifts to LM2 because the money supply decreases from M3 to M2 then, holding other factors constant:
- AA) the aggregate demand curve will shift to the right.
- BB) the aggregate demand curve will shift to the left.
- CC) this represents a movement up the aggregate demand curve.
- DD) this represents a movement down the aggregate demand curve.
2020. The Pigou effect:
- AA) suggests that as prices fall and real money balances rise, consumers should feel less wealthy and spend less.
- BB) suggests that as prices fall and real money balances rise, consumers should feel wealthier and spend more.
- CC) suggests that as prices fall and real money balances rise, consumers should feel less wealthy but spend more.
- DD) is generally accepted as adequate proof that the economy must be able to correct itself.
2121. If real money balances enter the IS–LM model both through the theory of liquidity preference and the Pigou effect, then a fall in the price level will shift:
- AA) only the LM curve.
- BB) only the IS curve.
- CC) both the LM and the IS curves.
- DD) neither the LM nor the IS curve.
Information
- Description
- Econ Exam 3 Quiz on Chapter 12 - Review, created by Mahmoud Hemood on 27/05/2019.
- Author
- Mahmoud Hemood
- Language
- English
- Views
- 7
- Tags
- Rating
- No ratings yet Rate this quiz