Question 1

An increase in labor productivity will cause the FE line to

Accepted Answer

A) shift to the left. 
B) intersect the IS curve at a higher real interest rate. 
C) intersect the LM curve at a higher real interest rate. 
D) become steeper. 
A) shift to the left. 
B) intersect the IS curve at a higher real interest rate. 
C) intersect the LM curve at a higher real interest rate. 
D) become steeper. C

Question 2

In a large open economy, the real interest rate does not have to fall by as much in order to restore equilibrium in the goods market in response to an increase in domestic output because

Accepted Answer

A) the IS curve is steeper. 
B) some of the increase in desired domestic saving flows abroad. 
C) the increase in desired domestic saving is smaller. 
D) foreigners will decrease their demand for domestically produced goods. 
A) the IS curve is steeper. 
B) some of the increase in desired domestic saving flows abroad. 
C) the increase in desired domestic saving is smaller. 
D) foreigners will decrease their demand for domestically produced goods. B

Question 3

In the short run, an increase in the money supply will lead to

Accepted Answer

A) an increase in both GDP and interest rates. 
B) an increase in interest rate but a decrease in GDP. 
C) a decrease in both GDP and interest rates. 
D) an increase in GDP but a decrease in interest rates. 
A) an increase in both GDP and interest rates. 
B) an increase in interest rate but a decrease in GDP. 
C) a decrease in both GDP and interest rates. 
D) an increase in GDP but a decrease in interest rates. D

Question 4

Which of the following will NOT cause the LM curve to shift to the left?

Accepted Answer

A) A decrease in supply of nominal money balances 
B) A decrease in the aggregate price level 
C) An increase in the nominal return on money 
D) A decrease in the expected rate of inflation 
A) A decrease in supply of nominal money balances 
B) A decrease in the aggregate price level 
C) An increase in the nominal return on money 
D) A decrease in the expected rate of inflation

Question 5

In a move up the IS curve,

Accepted Answer

A) investment rises. 
B) output falls. 
C) the real interest rate falls. 
D) saving rises. 
A) investment rises. 
B) output falls. 
C) the real interest rate falls. 
D) saving rises.

Question 6

Full-employment output can increase for all of the following reasons EXCEPT

Accepted Answer

A) increased productivity. 
B) increased capital stock. 
C) increased labor. 
D) increase in the price level. 
A) increased productivity. 
B) increased capital stock. 
C) increased labor. 
D) increase in the price level.

Question 7

The FE line would be shifted to the right by

Accepted Answer

A) a decline in the productivity of labor. 
B) a decline in the productivity of capital. 
C) an increase in the productivity of labor. 
D) a decline in the real interest rate. 
A) a decline in the productivity of labor. 
B) a decline in the productivity of capital. 
C) an increase in the productivity of labor. 
D) a decline in the real interest rate.

Question 8

In the long run, a permanent increase in the nominal money supply will

Accepted Answer

A) lead to a permanently higher level of real output. 
B) lead to a permanently higher price level. 
C) lead to a permanently higher level of investment spending. 
D) have no effect on the level of output, the price level, or the level of investment spending. 
A) lead to a permanently higher level of real output. 
B) lead to a permanently higher price level. 
C) lead to a permanently higher level of investment spending. 
D) have no effect on the level of output, the price level, or the level of investment spending.

Question 9

A drop in the interest paid on checkable deposits will

Accepted Answer

A) increase the quantity of real money balances demanded. 
B) reduce the real interest rate on nonmoney assets. 
C) shift the LM curve down and to the right. 
D) shift the IS curve down and to the right. 
A) increase the quantity of real money balances demanded. 
B) reduce the real interest rate on nonmoney assets. 
C) shift the LM curve down and to the right. 
D) shift the IS curve down and to the right.

Question 10

An increase in the supply of real money balances will cause

Accepted Answer

A) the LM curve to shift down and to the right. 
B) the LM curve to shift up and to the left. 
C) the IS curve to shift down and to the right. 
D) the IS curve to shift up and to the left. 
A) the LM curve to shift down and to the right. 
B) the LM curve to shift up and to the left. 
C) the IS curve to shift down and to the right. 
D) the IS curve to shift up and to the left.

Question 11

Studies have shown that the degree of international mobility of savings among the United States, Japan, and many European countries

Accepted Answer

A) has been about the same since the 1960s. 
B) declined during the 1980s in comparison to the 1960s and 1970s. 
C) increased during the 1980s in comparison to the 1960s and 1970s. 
D) has continually declined since the 1960s. 
A) has been about the same since the 1960s. 
B) declined during the 1980s in comparison to the 1960s and 1970s. 
C) increased during the 1980s in comparison to the 1960s and 1970s. 
D) has continually declined since the 1960s.

Question 12

An increase in the nominal return on money

Accepted Answer

A) shifts the LM curve up and to the left. 
B) shifts the LM curve down and to the right. 
C) will increase the real interest rate on nonmoney assets. 
D) shift the IS curve down and to the right. 
A) shifts the LM curve up and to the left. 
B) shifts the LM curve down and to the right. 
C) will increase the real interest rate on nonmoney assets. 
D) shift the IS curve down and to the right.

Question 13

At a point above the LM curve,

Accepted Answer

A) there is an excess demand for money. 
B) there is an excess supply of nonmoney assets. 
C) the real interest rate is above its equilibrium level. 
D) there is an excess demand for goods. 
A) there is an excess demand for money. 
B) there is an excess supply of nonmoney assets. 
C) the real interest rate is above its equilibrium level. 
D) there is an excess demand for goods.

Question 14

Which is true concerning the effect of an increase in the money supply compared to general equilibrium?

Accepted Answer

A) Though it may increase GDP in the short run, its primary effect in general equilibrium is a higher price level. 
B) Though it may increase inflation in the short run, its primary effect in general equilibrium is higher GDP. 
C) Both GDP and the price level are likely to rise both in the short run and in general equilibrium. 
D) Neither GDP nor the price level is likely to be affected in the general equilibrium. 
A) Though it may increase GDP in the short run, its primary effect in general equilibrium is a higher price level. 
B) Though it may increase inflation in the short run, its primary effect in general equilibrium is higher GDP. 
C) Both GDP and the price level are likely to rise both in the short run and in general equilibrium. 
D) Neither GDP nor the price level is likely to be affected in the general equilibrium.

Question 15

The IS curve for a small open economy is

Accepted Answer

A) steeper than the IS curve for a large open economy. 
B) steeper than the IS curve for a closed economy. 
C) vertical at the level of full-employment output. 
D) horizontal at the world real interest rate. 
A) steeper than the IS curve for a large open economy. 
B) steeper than the IS curve for a closed economy. 
C) vertical at the level of full-employment output. 
D) horizontal at the world real interest rate.

Question 16

When seeking to explain the low interest rates in 2005, the article "Excess Savings or Excess Liquidity?" makes the case that

Accepted Answer

A) excess liquidity is the primary cause since it would cause LM to shift downward leading to low interest rates and higher GDP 
B) excess liquidity is the primary cause since it would cause IS to shift downward leading to low itnerest rates and lower GDP 
C) excess savings is the primary cause since it would cause LM to shift downward leading to low interest rates and higher GDP 
D) excess savings is the primary cause since it would cause IS to shift downward leading to low interest rates and lower GDP 
A) excess liquidity is the primary cause since it would cause LM to shift downward leading to low interest rates and higher GDP 
B) excess liquidity is the primary cause since it would cause IS to shift downward leading to low itnerest rates and lower GDP 
C) excess savings is the primary cause since it would cause LM to shift downward leading to low interest rates and higher GDP 
D) excess savings is the primary cause since it would cause IS to shift downward leading to low interest rates and lower GDP

Question 17

For the goods market to be in equilibrium in a closed economy, which of the following must be true?

Accepted Answer

A) Y = S + I + G 
B) S + I = C + G 
C) S + G = Y + C 
D) S = I 
A) Y = S + I + G 
B) S + I = C + G 
C) S + G = Y + C 
D) S = I

Question 18

At any point along the LM curve,

Accepted Answer

A) the quantity of money demanded equals the quantity of money supplied. 
B) the economy must be in general equilibrium. 
C) the nominal interest rate must equal the real interest rate. 
D) saving must equal investment. 
A) the quantity of money demanded equals the quantity of money supplied. 
B) the economy must be in general equilibrium. 
C) the nominal interest rate must equal the real interest rate. 
D) saving must equal investment.

Question 19

An increase in the expected profitability of investment will cause

Accepted Answer

A) IS to shift upward. 
B) IS to shift downward. 
C) LM to shift upward. 
D) LM to shift downward. 
A) IS to shift upward. 
B) IS to shift downward. 
C) LM to shift upward. 
D) LM to shift downward.

Question 20

A decline in real output causes the demand for real balances

Accepted Answer

A) to rise and the interest rate to fall. 
B) to fall and the interest rate to rise. 
C) and the interest rate to fall. 
D) and the interest rate to rise. 
A) to rise and the interest rate to fall. 
B) to fall and the interest rate to rise. 
C) and the interest rate to fall. 
D) and the interest rate to rise.

Exam 24: Linking the Financial System and the Economy: the Is-Lm-Fe Model

An increase in labor productivity will cause the FE line to

In a large open economy, the real interest rate does not have to fall by as much in order to restore equilibrium in the goods market in response to an increase in domestic output because

In the short run, an increase in the money supply will lead to

Which of the following will NOT cause the LM curve to shift to the left?

In a move up the IS curve,

Full-employment output can increase for all of the following reasons EXCEPT

The FE line would be shifted to the right by

In the long run, a permanent increase in the nominal money supply will

A drop in the interest paid on checkable deposits will

An increase in the supply of real money balances will cause

Studies have shown that the degree of international mobility of savings among the United States, Japan, and many European countries

An increase in the nominal return on money

At a point above the LM curve,

Which is true concerning the effect of an increase in the money supply compared to general equilibrium?

The IS curve for a small open economy is

When seeking to explain the low interest rates in 2005, the article "Excess Savings or Excess Liquidity?" makes the case that

For the goods market to be in equilibrium in a closed economy, which of the following must be true?

At any point along the LM curve,

An increase in the expected profitability of investment will cause

A decline in real output causes the demand for real balances

Introducing Money and the Financial System

Money and the Payments System

Overview of the Financial System

Interest Rates and Rates of Return

The Theory of Portfolio Allocation

Determining Market Interest Rates

Risk Structure and Term Structure of Interest Rates

The Foreign-Exchange Market and Exchange Rates

Derivative Securities and Derivative Markets

Information and Financial Market Efficiency

Reducing Transactions Costs and Information Costs

What Financial Institutions Do

The Business of Banking

The Banking Industry

Banking Regulation: Crisis and Response

Banking in the International Economy

The Money Supply Process

Changes in the Monetary Base

Organization of Central Banks

Monetary Policy Tools

The Conduct of Monetary Policy

The International Financial System and Monetary Policy

The Demand for Money

Aggregate Demand and Aggregate Supply

Money and Output in the Short Run

Information Problems and Channels for Monetary Policy

Inflation: Causes and Consequences

Filters