Question 1

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 rise.

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

Question 2

How is Keynes's consumption function defined? describe the terms used in this function?

Accepted Answer

According to Keynes the consumer expendi

Question 3

The negative relation between investment spending and the interest rate is what gives the ________ curve its ________ slope.

Accepted Answer

A)  IS; upward 
B)  IS; downward 
C)  LM; downward 
D)  LM; upward 
A)  IS; upward 
B)  IS; downward 
C)  LM; downward 
D)  LM; upward

Question 4

A decline in taxes ________ consumer expenditure and shifts the ________ curve to the ________, everything else held constant.

Accepted Answer

A)  raises; LM; right 
B)  lowers; IS; left 
C)  raises; IS; right 
D)  lowers; LM; left 
A)  raises; LM; right 
B)  lowers; IS; left 
C)  raises; IS; right 
D)  lowers; LM; left

Question 5

Keynes believed that changes in autonomous spending were dominated by unstable fluctuations in ________, which are influenced by emotional waves of optimism and pessimism-factors he referred to as "animal spirits."

Accepted Answer

A)  unplanned investment spending 
B)  actual investment spending 
C)  planned investment spending 
D)  autonomous consumer expenditures 
A)  unplanned investment spending 
B)  actual investment spending 
C)  planned investment spending 
D)  autonomous consumer expenditures

Question 6

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

Accepted Answer

A)  lower; fall 
B)  lower; rise 
C)  raise; fall 
D)  raise; rise 
A)  lower; fall 
B)  lower; rise 
C)  raise; fall 
D)  raise; rise

Question 7

Other things equal, a decrease in autonomous consumption shifts the ________ curve to the ________.

Accepted Answer

A)  IS; right 
B)  IS; left 
C)  LM; left 
D)  LM; right 
A)  IS; right 
B)  IS; left 
C)  LM; left 
D)  LM; right

Question 8

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

Question 9

When the interest rate rises, ________.

Accepted Answer

A)  planned investment falls 
B)  planned investment rises 
C)  planned investment will be unaffected 
D)  equilibrium income increases 
A)  planned investment falls 
B)  planned investment rises 
C)  planned investment will be unaffected 
D)  equilibrium income increases

Question 10

If the consumption function is expressed as C = a + mpc × YD, then "mpc" represents ________.

Accepted Answer

A)  autonomous consumer expenditure 
B)  the marginal propensity to consume 
C)  the expenditure multiplier 
D)  disposable income 
A)  autonomous consumer expenditure 
B)  the marginal propensity to consume 
C)  the expenditure multiplier 
D)  disposable income

Question 11

Define the IS curve.

Accepted Answer

The IS curve shows the relatio

Question 12

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

Accepted Answer

A)  below; lower 
B)  above; lower 
C)  below; raise 
D)  above; raise 
A)  below; lower 
B)  above; lower 
C)  below; raise 
D)  above; raise

Question 13

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

Accepted Answer

A)  negative; lower 
B)  negative; raise 
C)  positive; lower 
D)  positive; raise 
A)  negative; lower 
B)  negative; raise 
C)  positive; lower 
D)  positive; raise

Question 14

A fall in inventories is synonymous with ________ investment.

Accepted Answer

A)  negative fixed 
B)  positive fixed 
C)  positive inventory 
D)  negative inventory 
A)  negative fixed 
B)  positive fixed 
C)  positive inventory 
D)  negative inventory

Question 15

If aggregate demand equals output, ________.

Accepted Answer

A)  the economy is in a recession 
B)  output will increase 
C)  output will fall 
D)  the economy is at its equilibrium level 
A)  the economy is in a recession 
B)  output will increase 
C)  output will fall 
D)  the economy is at its equilibrium level

Question 16

A decline in autonomous consumer expenditure causes the aggregate demand function to shift ________, the equilibrium level of aggregate output to fall, 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 17

Situation 20-1
Assume a closed economy with no government. Suppose that autonomous consumption equals $400, planned investment equals $500, and the mpc equals 0.9.
-Using the information contained in Situation 20-1, if planned investment decreases by $100, 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

Question 18

If young business professionals in Canada suddenly decide that driving German-made cars is an important status symbol, net exports will tend to ________ causing aggregate demand to ________, everything else held constant.

Accepted Answer

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

Question 19

Keynes was especially concerned with explaining the ________ level of output and employment during the ________.

Accepted Answer

A)  low; 1920s 
B)  low; 1930s 
C)  high; 1920s 
D)  high; 1930s 
A)  low; 1920s 
B)  low; 1930s 
C)  high; 1920s 
D)  high; 1930s

Question 20

A decrease in investment spending because companies become more pessimistic about investment profitability causes the aggregate demand function to shift ________ and the equilibrium level of aggregate output to ________, everything else held constant.

Accepted Answer

A)  up; rise 
B)  up; fall 
C)  down; rise 
D)  down; fall 
A)  up; rise 
B)  up; fall 
C)  down; rise 
D)  down; fall

Exam 21: The Is Curve

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 rise.

How is Keynes's consumption function defined? describe the terms used in this function?

The negative relation between investment spending and the interest rate is what gives the ________ curve its ________ slope.

A decline in taxes ________ consumer expenditure and shifts the ________ curve to the ________, everything else held constant.

Keynes believed that changes in autonomous spending were dominated by unstable fluctuations in ________, which are influenced by emotional waves of optimism and pessimism-factors he referred to as "animal spirits."

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

Other things equal, a decrease in autonomous consumption shifts the ________ curve to the ________.

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

When the interest rate rises, ________.

If the consumption function is expressed as C = a + mpc × YD, then "mpc" represents ________.

Define the IS curve.

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

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

A fall in inventories is synonymous with ________ investment.

If aggregate demand equals output, ________.

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

If young business professionals in Canada suddenly decide that driving German-made cars is an important status symbol, net exports will tend to ________ causing aggregate demand to ________, everything else held constant.

Keynes was especially concerned with explaining the ________ level of output and employment during the ________.

A decrease in investment spending because companies become more pessimistic about investment profitability causes the aggregate demand function to shift ________ and the equilibrium level of aggregate output to ________, everything else held constant.

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 rise.

The negative relation between investment spending and the interest rate is what gives the curve its slope.

A decline in taxes consumer expenditure and shifts the curve to the , everything else held constant.

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

Other things equal, a decrease in autonomous consumption shifts the curve to the .

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

If the consumption function is expressed as C = a + mpc × Y_D, then "mpc" represents ________.

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

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

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

If young business professionals in Canada suddenly decide that driving German-made cars is an important status symbol, net exports will tend to causing aggregate demand to , everything else held constant.

Keynes was especially concerned with explaining the level of output and employment during the .

A decrease in investment spending because companies become more pessimistic about investment profitability causes the aggregate demand function to shift and the equilibrium level of aggregate output to , everything else held constant.