Question 1

Aggregate demand in an economy with no government or foreign trade is ________.

Accepted Answer

A)  consumer expenditure plus actual investment 
B)  consumer expenditure plus planned investment 
C)  consumer expenditure plus inventory investment 
D)  consumer expenditure plus fixed investment 
A)  consumer expenditure plus actual investment 
B)  consumer expenditure plus planned investment 
C)  consumer expenditure plus inventory investment 
D)  consumer expenditure plus fixed investment B

Question 2

Situation 20-2
Assume a closed economy. Suppose that autonomous consumption equals $400, planned investment equals $500, government expenditure equals $200, net taxes equals $50, and the mpc equals 0.9.
-Using the information in situation 20-2, if government spending increases by $100, then the equilibrium aggregate output will change by ________.

Accepted Answer

A)  -$1000 
B)  -$100 
C)  $100 
D)  $1000 
A)  -$1000 
B)  -$100 
C)  $100 
D)  $1000 D

Question 3

Everything else held constant, if aggregate output is to the ________ of the IS curve, then there is an excess ________ of goods which will cause aggregate output to fall.

Accepted Answer

A)  right; supply 
B)  right; demand 
C)  left; supply 
D)  left; demand 
A)  right; supply 
B)  right; demand 
C)  left; supply 
D)  left; demand A

Question 4

If net exports increase by 250 and the mpc is 0.75, equilibrium aggregate output increases by ________.

Accepted Answer

A)  250 
B)  500 
C)  750 
D)  1000 
A)  250 
B)  500 
C)  750 
D)  1000

Question 5

If the consumption function is C = 20 + 0.8YD, then an increase in disposable income by $100 will result in an increase in consumer expenditure by ________.

Accepted Answer

A)  $58 
B)  $64 
C)  $80 
D)  $100 
A)  $58 
B)  $64 
C)  $80 
D)  $100

Question 6

If actual output is less than equilibrium output, firms will ________ output to keep from ________ inventories.

Accepted Answer

A)  increase; accumulating 
B)  increase; depleting 
C)  decrease; depleting 
D)  decrease; accumulating 
A)  increase; accumulating 
B)  increase; depleting 
C)  decrease; depleting 
D)  decrease; accumulating

Question 7

Keynes reasoned that consumer expenditure is most closely related to ________.

Accepted Answer

A)  the level of interest rates 
B)  the price level 
C)  disposable income 
D)  the marginal tax rate 
A)  the level of interest rates 
B)  the price level 
C)  disposable income 
D)  the marginal tax rate

Question 8

Situation 20-2
Assume a closed economy. Suppose that autonomous consumption equals $400, planned investment equals $500, government expenditure equals $200, net taxes equals $50, and the mpc equals 0.9.
-Using the information in situation 20-2, if government increases their spending by $50 and increases net taxes by 50, then equilibrium aggregate output will change by ________.

Accepted Answer

A)  -$100 
B)  -$50 
C)  $50 
D)  $100 
A)  -$100 
B)  -$50 
C)  $50 
D)  $100

Question 9

If the consumption function is C = 20 + 0.5YD, then an increase in disposable income by $100 will result in an increase in consumer expenditure by ________.

Accepted Answer

A)  $25 
B)  $70 
C)  $50 
D)  $100 
A)  $25 
B)  $70 
C)  $50 
D)  $100

Question 10

In the simple Keynesian framework, declines in planned investment spending that produce high unemployment can be offset by raising ________.

Accepted Answer

A)  taxes 
B)  government spending 
C)  consumer confidence 
D)  business confidence 
A)  taxes 
B)  government spending 
C)  consumer confidence 
D)  business confidence

Question 11

If the interest rate falls, other things being equal, investment spending will ________.

Accepted Answer

A)  fall 
B)  rise 
C)  either rise, fall, or remain unchanged 
D)  not be affected 
A)  fall 
B)  rise 
C)  either rise, fall, or remain unchanged 
D)  not be affected

Question 12

An increase in investment spending because companies become more optimistic about investment profitability causes the aggregate demand function to shift ________, the equilibrium level of aggregate output to rise, and the IS curve to shift to the ________, everything else held constant.

Accepted Answer

A)  up; left 
B)  up; right 
C)  down; left 
D)  down; right 
A)  up; left 
B)  up; right 
C)  down; left 
D)  down; right

Question 13

If aggregate demand falls short of current output, business firms will ________ production to ________ inventories.

Accepted Answer

A)  cut; keep from accumulating 
B)  expand; keep from accumulating 
C)  cut; build up 
D)  expand; build up 
A)  cut; keep from accumulating 
B)  expand; keep from accumulating 
C)  cut; build up 
D)  expand; build up

Question 14

An increase in investment spending because companies become more optimistic about investment profitability causes the aggregate demand function to shift up, the equilibrium level of aggregate output to ________, and the IS curve to shift to the ________, everything else held constant.

Accepted Answer

A)  rise; left 
B)  rise; right 
C)  fall; left 
D)  fall; right 
A)  rise; left 
B)  rise; right 
C)  fall; left 
D)  fall; right

Question 15

A decline in autonomous consumer expenditure causes the aggregate demand function to shift down, the equilibrium level of aggregate output to ________, and the IS curve to shift to the ________, everything else held constant.

Accepted Answer

A)  rise; left 
B)  rise; right 
C)  fall; left 
D)  fall; right 
A)  rise; left 
B)  rise; right 
C)  fall; left 
D)  fall; right

Question 16

An increase in interest rates ________.

Accepted Answer

A)  increases the value of the dollar, net exports, and equilibrium output 
B)  increases the value of the dollar, reducing net exports and equilibrium output 
C)  reduces the value of the dollar, net exports, and equilibrium output 
D)  reduces the value of the dollar, increasing net exports and equilibrium output 
A)  increases the value of the dollar, net exports, and equilibrium output 
B)  increases the value of the dollar, reducing net exports and equilibrium output 
C)  reduces the value of the dollar, net exports, and equilibrium output 
D)  reduces the value of the dollar, increasing net exports and equilibrium output

Question 17

Keynes's motivation in developing the aggregate output determination model stemmed from his concern with explaining ________.

Accepted Answer

A)  the hyperinflations of the 1920s 
B)  why the Great Depression occurred 
C)  the high unemployment in Great Britain before World War I 
D)  the high unemployment in Great Britain after World War II 
A)  the hyperinflations of the 1920s 
B)  why the Great Depression occurred 
C)  the high unemployment in Great Britain before World War I 
D)  the high unemployment in Great Britain after World War II

Question 18

An increase in autonomous consumer expenditure causes the aggregate demand function to shift ________, the equilibrium level of aggregate output to rise, and the IS curve to shift to the ________, everything else held constant.

Accepted Answer

A)  up; left 
B)  up; right 
C)  down; left 
D)  down; right 
A)  up; left 
B)  up; right 
C)  down; left 
D)  down; right

Question 19

What are the factors that can shift the IS curve to the right?

Accepted Answer

The factors that can shift the IS curve

Question 20

In the Keynesian framework, as long as output is ________ the equilibrium level, unplanned inventory investment will remain ________ and firms will continue to lower production.

Accepted Answer

A)  below; negative 
B)  above; negative 
C)  below; positive 
D)  above; positive 
A)  below; negative 
B)  above; negative 
C)  below; positive 
D)  above; positive

Exam 21: The Is Curve

Aggregate demand in an economy with no government or foreign trade is ________.

Everything else held constant, if aggregate output is to the ________ of the IS curve, then there is an excess ________ of goods which will cause aggregate output to fall.

If net exports increase by 250 and the mpc is 0.75, equilibrium aggregate output increases by ________.

If the consumption function is C = 20 + 0.8YD, then an increase in disposable income by $100 will result in an increase in consumer expenditure by ________.

If actual output is less than equilibrium output, firms will ________ output to keep from ________ inventories.

Keynes reasoned that consumer expenditure is most closely related to ________.

If the consumption function is C = 20 + 0.5YD, then an increase in disposable income by $100 will result in an increase in consumer expenditure by ________.

In the simple Keynesian framework, declines in planned investment spending that produce high unemployment can be offset by raising ________.

If the interest rate falls, other things being equal, investment spending will ________.

An increase in investment spending because companies become more optimistic about investment profitability causes the aggregate demand function to shift ________, the equilibrium level of aggregate output to rise, and the IS curve to shift to the ________, everything else held constant.

If aggregate demand falls short of current output, business firms will ________ production to ________ inventories.

An increase in investment spending because companies become more optimistic about investment profitability causes the aggregate demand function to shift up, the equilibrium level of aggregate output to ________, and the IS curve to shift to the ________, everything else held constant.

A decline in autonomous consumer expenditure causes the aggregate demand function to shift down, the equilibrium level of aggregate output to ________, and the IS curve to shift to the ________, everything else held constant.

An increase in interest rates ________.

Keynes's motivation in developing the aggregate output determination model stemmed from his concern with explaining ________.

An increase in autonomous consumer expenditure causes the aggregate demand function to shift ________, the equilibrium level of aggregate output to rise, and the IS curve to shift to the ________, everything else held constant.

What are the factors that can shift the IS curve to the right?

In the Keynesian framework, as long as output is ________ the equilibrium level, unplanned inventory investment will remain ________ and firms will continue to lower production.

Why Study Money, Banking, and Financial Markets

An Overview of the Financial System

What Is Money

The Meaning of Interest Rates

The Behaviour of Interest Rates

The Risk and Term Structure of Interest Rates

The Stock Market, the Theory of Rational Expectations, and the Efficient Market Hypothesis

An Economic Analysis of Financial Structure

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

Financial Crises

Banking and the Management of Financial Institutions

Risk Management With Financial Derivatives

Central Banks and the Bank of Canada

The Money Supply Process

Tools of Monetary Policy

The Conduct of Monetary Policy: Strategy and Tactics

The Foreign Exchange Market

The International Financial System

Quantity Theory, Inflation, and the Demand for Money

The Monetary Policy and Aggregate Demand Curves

Aggregate Demand and Supply Analysis

Monetary Policy Theory

The Role of Expectations in Monetary Policy

Transmission Mechanisms of Monetary Policy

Filters

Everything else held constant, if aggregate output is to the of the IS curve, then there is an excess of goods which will cause aggregate output to fall.

If the consumption function is C = 20 + 0.8Y_D, then an increase in disposable income by $100 will result in an increase in consumer expenditure by ________.

If actual output is less than equilibrium output, firms will output to keep from inventories.

If the consumption function is C = 20 + 0.5Y_D, then an increase in disposable income by $100 will result in an increase in consumer expenditure by ________.

An increase in investment spending because companies become more optimistic about investment profitability causes the aggregate demand function to shift , the equilibrium level of aggregate output to rise, and the IS curve to shift to the , everything else held constant.

If aggregate demand falls short of current output, business firms will production to inventories.

An increase in investment spending because companies become more optimistic about investment profitability causes the aggregate demand function to shift up, the equilibrium level of aggregate output to , and the IS curve to shift to the , everything else held constant.

A decline in autonomous consumer expenditure causes the aggregate demand function to shift down, the equilibrium level of aggregate output to , and the IS curve to shift to the , everything else held constant.

An increase in autonomous consumer expenditure causes the aggregate demand function to shift , the equilibrium level of aggregate output to rise, and the IS curve to shift to the , everything else held constant.

In the Keynesian framework, as long as output is the equilibrium level, unplanned inventory investment will remain and firms will continue to lower production.