Question 1

Given a normal IS-LM model, which of the following is FALSE?

Accepted Answer

A) expansionary monetary policy will increase the level of investment and consumption 
B) lower income tax rates will raise the level of consumption but lower the level of investment 
C) a cut in government transfer payments will reduce consumption and interest rates 
D) an investment subsidy will increase the level of investment but not the level of consumption 
E) restrictive monetary policy will lower consumption, investment, and the budget surplus 
A) expansionary monetary policy will increase the level of investment and consumption 
B) lower income tax rates will raise the level of consumption but lower the level of investment 
C) a cut in government transfer payments will reduce consumption and interest rates 
D) an investment subsidy will increase the level of investment but not the level of consumption 
E) restrictive monetary policy will lower consumption, investment, and the budget surplus

Question 2

A change in which of the following will NOT shift the IS-curve?

Accepted Answer

A) autonomous investment 
B) autonomous money demand 
C) autonomous consumption 
D) autonomous net exports 
E) autonomous saving 
A) autonomous investment 
B) autonomous money demand 
C) autonomous consumption 
D) autonomous net exports 
E) autonomous saving

Question 3

Monetary policy is said to be accommodating when

Accepted Answer

A) the central bank undertakes open market sales to fight inflation 
B) the central bank responds to a tax increase by increasing money supply 
C) the central bank responds to fiscal expansion by undertaking open market sales 
D) in the course of fiscal expansion, the central bank increases money supply to prevent interest rates from rising 
E) the central bank does not interfere in any way when the government undertakes fiscal policy 
A) the central bank undertakes open market sales to fight inflation 
B) the central bank responds to a tax increase by increasing money supply 
C) the central bank responds to fiscal expansion by undertaking open market sales 
D) in the course of fiscal expansion, the central bank increases money supply to prevent interest rates from rising 
E) the central bank does not interfere in any way when the government undertakes fiscal policy

Question 4

If short-term interest rates hit the lower zero bound and the Fed buys a large quantity of long-term assets to reduce long-term interest rates directly, the Fed is employing

Accepted Answer

A) a zero lower bound policy 
B) a federal funds policy 
C) a policy of monetary transmission 
D) a policy of quantitative easing 
E) anticipatory monetary policy 
A) a zero lower bound policy 
B) a federal funds policy 
C) a policy of monetary transmission 
D) a policy of quantitative easing 
E) anticipatory monetary policy

Question 5

In a normal IS-LM framework, if government purchases and taxes are both increased by the same amount, the level of output

Accepted Answer

A) will increase by exactly that amount 
B) will remain the same but its composition will change 
C) will not change and neither will the composition of output 
D) will increase as will the interest rate 
E) will increase but only if this fiscal policy is accommodated by expansionary monetary policy 
A) will increase by exactly that amount 
B) will remain the same but its composition will change 
C) will not change and neither will the composition of output 
D) will increase as will the interest rate 
E) will increase but only if this fiscal policy is accommodated by expansionary monetary policy

Question 6

In an IS-LM framework, fiscal expansion generally leads to income expansion

Accepted Answer

A) only if it is combined with monetary expansion 
B) except if we are in the liquidity trap 
C) but interest rates will increase, leading to a lower level of saving 
D) but the composition of output will change 
E) but most consumption spending will be crowded out 
A) only if it is combined with monetary expansion 
B) except if we are in the liquidity trap 
C) but interest rates will increase, leading to a lower level of saving 
D) but the composition of output will change 
E) but most consumption spending will be crowded out

Question 7

If the Fed undertakes open market sales, then

Accepted Answer

A) the LM-curve will shift to the right 
B) the LM-curve will shift to the left 
C) interest rates will decrease and income will increase 
D) bond prices will increase 
E) both A and C 
A) the LM-curve will shift to the right 
B) the LM-curve will shift to the left 
C) interest rates will decrease and income will increase 
D) bond prices will increase 
E) both A and C

Question 8

Fiscal policy is weakest and monetary policy is strongest when

Accepted Answer

A) we are in the liquidity trap 
B) money demand is very interest elastic 
C) investment is very interest inelastic 
D) we are in the classical case 
E) the IS-curve is very steep and the LM-curve is very flat 
A) we are in the liquidity trap 
B) money demand is very interest elastic 
C) investment is very interest inelastic 
D) we are in the classical case 
E) the IS-curve is very steep and the LM-curve is very flat

Question 9

Assume the government cuts the level of government purchases and the Fed responds by increasing money supply.Which of the following is the most likely result?

Accepted Answer

A) lower interest rates and a higher budget surplus 
B) a large decrease in the interest rate and output 
C) a decrease in investment and the budget deficit 
D) an increase in consumption and lower tax revenues 
E) a decrease in consumption and investment 
A) lower interest rates and a higher budget surplus 
B) a large decrease in the interest rate and output 
C) a decrease in investment and the budget deficit 
D) an increase in consumption and lower tax revenues 
E) a decrease in consumption and investment

Question 10

The re-unification of Germany required a large increase in government spending, but the Bundesbank refused to accommodate the expansionary fiscal policy due to concerns about rising inflation.What was the outcome?

Accepted Answer

A) rising real interest rates 
B) a deficit in the current account of the balance of payments 
C) an increase in the budget deficit 
D) a change in the composition of Germany's GDP 
E) all of the above 
A) rising real interest rates 
B) a deficit in the current account of the balance of payments 
C) an increase in the budget deficit 
D) a change in the composition of Germany's GDP 
E) all of the above

Given a normal IS-LM model, which of the following is FALSE?

A change in which of the following will NOT shift the IS-curve?

Monetary policy is said to be accommodating when

If short-term interest rates hit the lower zero bound and the Fed buys a large quantity of long-term assets to reduce long-term interest rates directly, the Fed is employing

In a normal IS-LM framework, if government purchases and taxes are both increased by the same amount, the level of output

In an IS-LM framework, fiscal expansion generally leads to income expansion

If the Fed undertakes open market sales, then

Fiscal policy is weakest and monetary policy is strongest when

Assume the government cuts the level of government purchases and the Fed responds by increasing money supply.Which of the following is the most likely result?

The re-unification of Germany required a large increase in government spending, but the Bundesbank refused to accommodate the expansionary fiscal policy due to concerns about rising inflation.What was the outcome?

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

Money, interest, and income

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

Filters

Exam 12: Monetary and fiscal policy

Given a normal IS-LM model, which of the following is FALSE?

A change in which of the following will NOT shift the IS-curve?

Monetary policy is said to be accommodating when

If short-term interest rates hit the lower zero bound and the Fed buys a large quantity of long-term assets to reduce long-term interest rates directly, the Fed is employing

In a normal IS-LM framework, if government purchases and taxes are both increased by the same amount, the level of output

In an IS-LM framework, fiscal expansion generally leads to income expansion

If the Fed undertakes open market sales, then

Fiscal policy is weakest and monetary policy is strongest when

Assume the government cuts the level of government purchases and the Fed responds by increasing money supply.Which of the following is the most likely result?

The re-unification of Germany required a large increase in government spending, but the Bundesbank refused to accommodate the expansionary fiscal policy due to concerns about rising inflation.What was the outcome?

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

Money, interest, and income

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

Filters