Question 1

The monetary policy multiplier is large if

Accepted Answer

A) the LM-curve is steep and the IS-curve is flat 
B) the LM-curve is flat and the IS-curve is steep 
C) money demand is very interest sensitive 
D) investment is very interest insensitive 
E) both money supply and money demand are very interest sensitive 
A) the LM-curve is steep and the IS-curve is flat 
B) the LM-curve is flat and the IS-curve is steep 
C) money demand is very interest sensitive 
D) investment is very interest insensitive 
E) both money supply and money demand are very interest sensitive A

Question 2

In an IS-LM model, an increase in autonomous spending

Accepted Answer

A) is caused by a fall in the interest rate 
B) will cause a fall in the interest rate 
C) will lead to an increase in income and the interest rate 
D) will shift the LM-curve to the right 
E) is caused by a movement along the IS-curve from left to right 
A) is caused by a fall in the interest rate 
B) will cause a fall in the interest rate 
C) will lead to an increase in income and the interest rate 
D) will shift the LM-curve to the right 
E) is caused by a movement along the IS-curve from left to right C

Question 3

Interest rate changes have an important side effect on the economy since even a small change in interest rates can significantly change

Accepted Answer

A) the composition of output demanded 
B) the level of private saving 
C) the level of consumption 
D) the level of government spending 
E) none of the above 
A) the composition of output demanded 
B) the level of private saving 
C) the level of consumption 
D) the level of government spending 
E) none of the above A

Question 4

In an IS-LM model, if the government decides to cut welfare spending,

Accepted Answer

A) the interest rate will decrease while personal saving will increase 
B) the interest rate and the level of consumption will both decrease 
C) the interest rate will decrease while income tax revenue will increase 
D) the federal budget deficit will decrease and the level of output will increase 
E) none of the above 
A) the interest rate will decrease while personal saving will increase 
B) the interest rate and the level of consumption will both decrease 
C) the interest rate will decrease while income tax revenue will increase 
D) the federal budget deficit will decrease and the level of output will increase 
E) none of the above

Question 5

The LM-curve

Accepted Answer

A) shows the relationship between the interest rate and the level of investment spending 
B) is negatively sloped because increases in the income level can only be achieved if the interest rate is lowered 
C) is negatively sloped since increases in money supply always lower interest rates 
D) is upward sloping because a higher income level is always associated with a higher nominal money supply 
E) shows combinations of the interest rate and the income level such that money supply and money demand are equal 
A) shows the relationship between the interest rate and the level of investment spending 
B) is negatively sloped because increases in the income level can only be achieved if the interest rate is lowered 
C) is negatively sloped since increases in money supply always lower interest rates 
D) is upward sloping because a higher income level is always associated with a higher nominal money supply 
E) shows combinations of the interest rate and the income level such that money supply and money demand are equal

Question 6

Which of the following government policy actions will result in a parallel shift of the IS-curve to the left?

Accepted Answer

A) a decrease in government purchases 
B) an increase in government purchases 
C) an increase in transfer payments 
D) a decrease in the income tax rate 
E) an increase in the income tax rate 
A) a decrease in government purchases 
B) an increase in government purchases 
C) an increase in transfer payments 
D) a decrease in the income tax rate 
E) an increase in the income tax rate

Question 7

If investment becomes more sensitive to changes in the interest rate, then

Accepted Answer

A) the size of the fiscal policy multiplier will decrease 
B) the size of the fiscal policy multiplier will increase 
C) the size of the monetary policy multiplier will decrease 
D) the size of the monetary policy multiplier will increase 
E) both A and D 
A) the size of the fiscal policy multiplier will decrease 
B) the size of the fiscal policy multiplier will increase 
C) the size of the monetary policy multiplier will decrease 
D) the size of the monetary policy multiplier will increase 
E) both A and D

Question 8

In an IS-LM model, a decrease in the level of government purchases will result in

Accepted Answer

A) a decrease in the level of consumption 
B) an increase in the level of investment 
C) an increase in real money balances 
D) a decrease in money supply 
E) both A and B 
A) a decrease in the level of consumption 
B) an increase in the level of investment 
C) an increase in real money balances 
D) a decrease in money supply 
E) both A and B

Question 9

In an IS-LM model, an increase in the money supply will

Accepted Answer

A) lower interest rates and therefore decrease the level of saving and investment 
B) lower interest rates, stimulate investment spending, and increase national income 
C) lower interest rates and bond prices and decrease money demand 
D) stimulate investment spending, shifting both the LM- and IS-curves to the right 
E) increase government spending since more funds become available 
A) lower interest rates and therefore decrease the level of saving and investment 
B) lower interest rates, stimulate investment spending, and increase national income 
C) lower interest rates and bond prices and decrease money demand 
D) stimulate investment spending, shifting both the LM- and IS-curves to the right 
E) increase government spending since more funds become available

Question 10

In an IS-LM model, an increase in the personal income tax rate will

Accepted Answer

A) lower consumption and the interest rate but increase investment 
B) lower consumption and investment but increase the interest rate 
C) increase aggregate money demand and therefore cause interest rates to increase 
D) increase the expenditure multiplier 
E) decrease real money balances 
A) lower consumption and the interest rate but increase investment 
B) lower consumption and investment but increase the interest rate 
C) increase aggregate money demand and therefore cause interest rates to increase 
D) increase the expenditure multiplier 
E) decrease real money balances

Question 11

If the marginal propensity to save suddenly increases, then

Accepted Answer

A) the size of the fiscal policy multiplier will become larger 
B)  the size of the monetary policy multiplier will increase 
C) the IS-curve will become steeper 
D) the IS-curve will shift to the right and income will increase 
E) income will increase but the interest rate will decrease 
A) the size of the fiscal policy multiplier will become larger 
B)  the size of the monetary policy multiplier will increase 
C) the IS-curve will become steeper 
D) the IS-curve will shift to the right and income will increase 
E) income will increase but the interest rate will decrease

Question 12

In which of the following years were interest rates on U.S.Treasury bills the highest in the last four decades?

Accepted Answer

A) 1976 
B) 1981 
C) 1996 
D) 2002 
E) 2006 
A) 1976 
B) 1981 
C) 1996 
D) 2002 
E) 2006

Question 13

Which of the following will occur in an IS-LM model, if the government decides to raise the income tax rate?

Accepted Answer

A) the IS-curve will become flatter and shift to the right 
B) the IS-curve will become steeper and shift to the left 
C) the IS-curve will shift parallel to the left 
D) the LM-curve will become steeper and shift to the right 
E) the LM-curve will shift parallel to the right 
A) the IS-curve will become flatter and shift to the right 
B) the IS-curve will become steeper and shift to the left 
C) the IS-curve will shift parallel to the left 
D) the LM-curve will become steeper and shift to the right 
E) the LM-curve will shift parallel to the right

Question 14

The level of investment spending is affected by changes in the interest rate, since higher interest rates

Accepted Answer

A) will increase the cost of borrowing and thus lower the incentive to purchase capital equipment 
B) will make it more profitable to invest in the stock market 
C) will increase the return on saving 
D) will lower the value of government bonds so banks will lend more to firms and less to the government 
E) all of the above 
A) will increase the cost of borrowing and thus lower the incentive to purchase capital equipment 
B) will make it more profitable to invest in the stock market 
C) will increase the return on saving 
D) will lower the value of government bonds so banks will lend more to firms and less to the government 
E) all of the above

Question 15

Which of the following is the equation for the AD-curve?

Accepted Answer

A)   
B)   
C)   
D)   
E)   
A)   
B)   
C)   
D)   
E)

Question 16

In an IS-LM model, any point that is to the left and below the IS-curve indicates a situation where

Accepted Answer

A) there is excess demand for goods and services in the expenditure sector 
B) there is excess supply of goods and services in the expenditure sector 
C) the expenditure sector is in equilibrium but the money sector is not 
D) there is excess demand for money in the money sector 
E) there is excess supply of money in the money sector 
A) there is excess demand for goods and services in the expenditure sector 
B) there is excess supply of goods and services in the expenditure sector 
C) the expenditure sector is in equilibrium but the money sector is not 
D) there is excess demand for money in the money sector 
E) there is excess supply of money in the money sector

Question 17

A decrease in autonomous investment

Accepted Answer

A) results in a shift of the IS-curve to the left 
B) results in a shift of the IS-curve to the right 
C) occurs as we move along the IS-curve from right to left 
D) occurs as we move along the IS-curve from left to right 
E) is caused by an increase in government expenditures 
A) results in a shift of the IS-curve to the left 
B) results in a shift of the IS-curve to the right 
C) occurs as we move along the IS-curve from right to left 
D) occurs as we move along the IS-curve from left to right 
E) is caused by an increase in government expenditures

Question 18

Looking at the behavior of interest rates over time, we realize that

Accepted Answer

A) they tend to fall before a recession 
B) they tend to be high before a recession and fall during a recession 
C) they tend to rise in a recovery and fall in a recession 
D) they tend to be high in a recession 
E) both B and C 
A) they tend to fall before a recession 
B) they tend to be high before a recession and fall during a recession 
C) they tend to rise in a recovery and fall in a recession 
D) they tend to be high in a recession 
E) both B and C

Question 19

Which of the following will NOT cause a shift of the IS-curve?

Accepted Answer

A) a change in transfer payments 
B) a change in taxes 
C) a change in money demand 
D) a change in business and consumer confidence 
E) a change in autonomous saving 
A) a change in transfer payments 
B) a change in taxes 
C) a change in money demand 
D) a change in business and consumer confidence 
E) a change in autonomous saving

Question 20

Which of the following is TRUE as we move along the IS-curve?

Accepted Answer

A) a lower interest rate is compatible with a higher equilibrium output level 
B) a higher equilibrium output level is compatible with a higher interest rate 
C) a lower equilibrium income level is compatible with a higher level of transactions demand for money 
D) a higher interest rate is compatible with a higher level of equilibrium income and therefore a higher level of consumption 
E) a higher interest rate is compatible with higher asset prices and therefore a higher level of saving 
A) a lower interest rate is compatible with a higher equilibrium output level 
B) a higher equilibrium output level is compatible with a higher interest rate 
C) a lower equilibrium income level is compatible with a higher level of transactions demand for money 
D) a higher interest rate is compatible with a higher level of equilibrium income and therefore a higher level of consumption 
E) a higher interest rate is compatible with higher asset prices and therefore a higher level of saving

Exam 11: Money, interest, and income

The monetary policy multiplier is large if

In an IS-LM model, an increase in autonomous spending

Interest rate changes have an important side effect on the economy since even a small change in interest rates can significantly change

In an IS-LM model, if the government decides to cut welfare spending,

The LM-curve

Which of the following government policy actions will result in a parallel shift of the IS-curve to the left?

If investment becomes more sensitive to changes in the interest rate, then

In an IS-LM model, a decrease in the level of government purchases will result in

In an IS-LM model, an increase in the money supply will

In an IS-LM model, an increase in the personal income tax rate will

If the marginal propensity to save suddenly increases, then

In which of the following years were interest rates on U.S.Treasury bills the highest in the last four decades?

Which of the following will occur in an IS-LM model, if the government decides to raise the income tax rate?

The level of investment spending is affected by changes in the interest rate, since higher interest rates

Which of the following is the equation for the AD-curve?

In an IS-LM model, any point that is to the left and below the IS-curve indicates a situation where

A decrease in autonomous investment

Looking at the behavior of interest rates over time, we realize that

Which of the following will NOT cause a shift of the IS-curve?

Which of the following is TRUE as we move along the IS-curve?

Introduction

National income accounting

Growth and accumulation

Growth and policy

Aggregate supply and demand

Aggregate supply and the phillips curve

Unemployment

Inflation

Policy preview

Income and spending

Monetary and fiscal policy

International linkages

Consumption and saving

Investment spending

The demand for money

The fed, money, and credit

Policy

Financial markets and asset prices

The national debt

Recession and depression

Inflation and hyperinflation

International adjustment and interdependence

Advanced topics

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