Question 1

If there is excess supply in the money market,

Accepted Answer

A)  the supply of money will decrease to meet the demand at the current short-term nominal interest rate. 
B)  the short-term nominal interest rate will decrease until the excess supply disappears. 
C)  the short-term nominal interest rate will increase until the excess supply disappears. 
D)  the money demand curve will shift to the right until the excess supply disappears. 
A)  the supply of money will decrease to meet the demand at the current short-term nominal interest rate. 
B)  the short-term nominal interest rate will decrease until the excess supply disappears. 
C)  the short-term nominal interest rate will increase until the excess supply disappears. 
D)  the money demand curve will shift to the right until the excess supply disappears.

Question 2

The demand-for-money function (Md/P) is

Accepted Answer

A)  MyY + Mi i. 
B)  MyY - Mi r. 
C)  MyY - Mi i. 
D)  MyY + Mi r. 
A)  MyY + Mi i. 
B)  MyY - Mi r. 
C)  MyY - Mi i. 
D)  MyY + Mi r.

Question 3

The LM curve tells us how interest rates adjust

Accepted Answer

A)  when the stock of liquid money is fixed. 
B)  when the level of real GDP is fixed. 
C)  when the stock market is fixed. 
D)  when the stock of wealth is fixed. 
A)  when the stock of liquid money is fixed. 
B)  when the level of real GDP is fixed. 
C)  when the stock market is fixed. 
D)  when the stock of wealth is fixed.

Question 4

The questions with which Chapter 11 is concerned include each of the following except

Accepted Answer

A)  what is an IS shock to the economy?. 
B)  what is a supply shock? 
C)  what is an IS shock to the economy? 
D)  what is the aggregate demand - AD - curve? 
A)  what is an IS shock to the economy?. 
B)  what is a supply shock? 
C)  what is an IS shock to the economy? 
D)  what is the aggregate demand - AD - curve?

Question 5

Assume that the economy's marginal propensity to expend is 0.6, the initial baseline level of autonomous spending is $4000 billion, a one percentage point increase in the real interest rate will reduce the sum of investment and gross exports by $100 billion the inflation rate is 2%, and the LM curve is Y=$1500 + $1000 x (r +     )
-Suppose that the central bank increases the nominal money supply so that the new LM curve is Y=$3000 + $1000 x (r +   ). The new equilibrium level of national income would be

Accepted Answer

A)  $9150 billion. 
B)  $9575 billion. 
C)  $9000 billion. 
D)  $8600 billion. 
A)  $9150 billion. 
B)  $9575 billion. 
C)  $9000 billion. 
D)  $8600 billion.

Question 6

Economists call the correlation between real GDP (relative to potential output) and the price level and rate of inflation (relative to their previously expected value)

Accepted Answer

A)  the short-run aggregate supply curve. 
B)  the IS curve. 
C)  the aggregate demand curve. 
D)  the LM curve. 
A)  the short-run aggregate supply curve. 
B)  the IS curve. 
C)  the aggregate demand curve. 
D)  the LM curve.

Question 7

Assume that the economy's marginal propensity to expend is 0.6, the initial baseline level of autonomous spending is $4000 billion, a one percentage point increase in the real interest rate will reduce the sum of investment and gross exports by $100 billion the inflation rate is 2%, and the LM curve is Y=$1500 + $1000 x (r +     )
-Suppose that the baseline investment level increases by $200 billion. The new equilibrium level of national income would be

Accepted Answer

A)  $6217 billion. 
B)  $6500 billion. 
C)  $9100 billion. 
D)  $8700 billion. 
A)  $6217 billion. 
B)  $6500 billion. 
C)  $9100 billion. 
D)  $8700 billion.

Question 8

If the price level increases so that the real money supply decreases,

Accepted Answer

A)  the LM curve will shift to the left. 
B)  the IS curve will shift to the left. 
C)  the LM curve will shift to the right. 
D)  the slope of the LM curve will become more vertical. 
A)  the LM curve will shift to the left. 
B)  the IS curve will shift to the left. 
C)  the LM curve will shift to the right. 
D)  the slope of the LM curve will become more vertical.

Question 9

Assume that the economy's marginal propensity to expend is 0.6, the initial baseline level of autonomous spending is $4000 billion, a one percentage point increase in the real interest rate will reduce the sum of investment and gross exports by $100 billion the inflation rate is 2%, and the LM curve is Y=$1500 + $1000 x (r +     )
-The equilibrium nominal interest rate would be

Accepted Answer

A)  8.8%. 
B)  7.2%. 
C)  4.7%. 
D)  6.4%. 
A)  8.8%. 
B)  7.2%. 
C)  4.7%. 
D)  6.4%.

Question 10

The LM curve tells us

Accepted Answer

A)  the combinations of total income and nominal interest rates that produce money market equilibrium. 
B)  the combinations of potential output and nominal interest rates that produce money market equilibrium. 
C)  the combinations of total income and real interest rates that produce money market equilibrium. 
D)  what the nominal interest rate will be for each value of savings. 
A)  the combinations of total income and nominal interest rates that produce money market equilibrium. 
B)  the combinations of potential output and nominal interest rates that produce money market equilibrium. 
C)  the combinations of total income and real interest rates that produce money market equilibrium. 
D)  what the nominal interest rate will be for each value of savings.

Question 11

If the nominal money supply increases,

Accepted Answer

A)  the IS curve will shift to the right and the equilibrium levels of the real interest rate and real GDP will increase. 
B)  the IS curve will shift to the left and the equilibrium levels of the real interest rate and real GDP will decrease. 
C)  the LM curve will shift to the right and the equilibrium levels of the real interest rate and real GDP will decrease. 
D)  the LM curve will shift to the right and the equilibrium level of the real interest rate will decrease and . the equilibrium level of real GDP will increase. 
A)  the IS curve will shift to the right and the equilibrium levels of the real interest rate and real GDP will increase. 
B)  the IS curve will shift to the left and the equilibrium levels of the real interest rate and real GDP will decrease. 
C)  the LM curve will shift to the right and the equilibrium levels of the real interest rate and real GDP will decrease. 
D)  the LM curve will shift to the right and the equilibrium level of the real interest rate will decrease and . the equilibrium level of real GDP will increase.

Question 12

The aggregate demand curve is downward sloping because an increase in the price level (with the nominal stock of money fixed) will

Accepted Answer

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

Question 13

An increase in the money supply will shift the LM curve to the _______ and the ________

Accepted Answer

A)  right; AS curve to the left. 
B)  right; AD curve to the right. 
C)  left; AD curve to the right. 
D)  left; AD curve to the left. 
A)  right; AS curve to the left. 
B)  right; AD curve to the right. 
C)  left; AD curve to the right. 
D)  left; AD curve to the left.

Question 14

Any change in the marginal propensity to expend

Accepted Answer

A)  will shift the LM curve location. 
B)  will change the slope of the IS curve. 
C)  will shift the IS curve location. 
D)  will change the slope and shift the position of the IS curve 
A)  will shift the LM curve location. 
B)  will change the slope of the IS curve. 
C)  will shift the IS curve location. 
D)  will change the slope and shift the position of the IS curve

Question 15

If the baseline level of autonomous spending decreases,

Accepted Answer

A)  the IS curve will shift to the right and the equilibrium levels of the real interest rate and real GDP will increase. 
B)  the IS curve will shift to the left and the equilibrium levels of the real interest rate and real GDP will decrease. 
C)  the LM curve will shift to the left and the equilibrium levels of the real interest rate and real GDP will increase 
D)  the LM curve will shift to the left and the equilibrium levels of the real interest rate and real GDP will increase. 
A)  the IS curve will shift to the right and the equilibrium levels of the real interest rate and real GDP will increase. 
B)  the IS curve will shift to the left and the equilibrium levels of the real interest rate and real GDP will decrease. 
C)  the LM curve will shift to the left and the equilibrium levels of the real interest rate and real GDP will increase 
D)  the LM curve will shift to the left and the equilibrium levels of the real interest rate and real GDP will increase.

Question 16

If the expected inflation rate decreases,

Accepted Answer

A)  the LM curve will shift to the left. 
B)  the IS curve will shift to the right. 
C)  the LM curve will shift to the right. 
D)  the slope of the LM curve will become more horizontal. 
A)  the LM curve will shift to the left. 
B)  the IS curve will shift to the right. 
C)  the LM curve will shift to the right. 
D)  the slope of the LM curve will become more horizontal.

Question 17

The real money supply curve is drawn as a vertical line in Chapter 11 because

Accepted Answer

A)  the model assumes that the central bank is pegging the short-term nominal interest rate. 
B)  the model assumes that the central bank is pegging the demand for money. 
C)  the model assumes that the central bank is pegging the supply of money. 
D)  the model assumes that the central bank is pegging the potential output level. 
A)  the model assumes that the central bank is pegging the short-term nominal interest rate. 
B)  the model assumes that the central bank is pegging the demand for money. 
C)  the model assumes that the central bank is pegging the supply of money. 
D)  the model assumes that the central bank is pegging the potential output level.

Question 18

Any change in the economic environment and economic policy that change the level of autonomous spending

Accepted Answer

A)  will shift the LM curve location. 
B)  will change the slope of the LM curve. 
C)  will shift the IS curve location. 
D)  will change the slope of the IS curve. 
A)  will shift the LM curve location. 
B)  will change the slope of the LM curve. 
C)  will shift the IS curve location. 
D)  will change the slope of the IS curve.

Question 19

Assume that the economy's marginal propensity to expend is 0.6, the initial baseline level of autonomous spending is $4000 billion, a one percentage point increase in the real interest rate will reduce the sum of investment and gross exports by $100 billion the inflation rate is 2%, and the LM curve is Y=$1500 + $1000 x (r +     )
-Suppose that the central bank increases the nominal money supply so that the new LM curve is Y=$3000 + $1000 x (r +   ). The new equilibrium real interest rate would be

Accepted Answer

A)  5.6%. 
B)  3.4%. 
C)  1.7%. 
D)  4%. 
A)  5.6%. 
B)  3.4%. 
C)  1.7%. 
D)  4%.

Question 20

An increase in foreign real GDP will

Accepted Answer

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

If there is excess supply in the money market,

The demand-for-money function (M^d/P) is

The LM curve tells us how interest rates adjust

The questions with which Chapter 11 is concerned include each of the following except

Economists call the correlation between real GDP (relative to potential output) and the price level and rate of inflation (relative to their previously expected value)

If the price level increases so that the real money supply decreases,

The LM curve tells us

If the nominal money supply increases,

The aggregate demand curve is downward sloping because an increase in the price level (with the nominal stock of money fixed) will

An increase in the money supply will shift the LM curve to the _ and the __

Any change in the marginal propensity to expend

If the baseline level of autonomous spending decreases,

If the expected inflation rate decreases,

The real money supply curve is drawn as a vertical line in Chapter 11 because

Any change in the economic environment and economic policy that change the level of autonomous spending

An increase in foreign real GDP will

Introduction to Macroeconomics

Measuring the Macroeconomy

Thinking Like an Economist

The Theory of Economic Growth

The Reality of Economic Growth: History and Prospect

Building Blocks of the Flexible-Price Model

Equilibrium in the Flexible-Price M Odel

Money, Prices, and Inflation

The Sticky-Price Income-Expenditure Framework: Consumption and the Multiplier

Investment, Net Exports, and Interest Rates: The Is Curve

The Phillips Curve, Expectations, and Monetary Policy

Stabilization Policy

Budget Balance, National Debt, and Investment

International Economic Policy

Changes in the Macroeconomy and Changes in Macroeconomic Policy

The Future of Macroeconomics

Epilogue

Filters

Exam 11: The Money Market and the LM Curve

If there is excess supply in the money market,

The demand-for-money function (Md/P) is

The LM curve tells us how interest rates adjust

The questions with which Chapter 11 is concerned include each of the following except

Economists call the correlation between real GDP (relative to potential output) and the price level and rate of inflation (relative to their previously expected value)

If the price level increases so that the real money supply decreases,

The LM curve tells us

If the nominal money supply increases,

The aggregate demand curve is downward sloping because an increase in the price level (with the nominal stock of money fixed) will

An increase in the money supply will shift the LM curve to the _______ and the ________

Any change in the marginal propensity to expend

If the baseline level of autonomous spending decreases,

If the expected inflation rate decreases,

The real money supply curve is drawn as a vertical line in Chapter 11 because

Any change in the economic environment and economic policy that change the level of autonomous spending

An increase in foreign real GDP will

Introduction to Macroeconomics

Measuring the Macroeconomy

Thinking Like an Economist

The Theory of Economic Growth

The Reality of Economic Growth: History and Prospect

Building Blocks of the Flexible-Price Model

Equilibrium in the Flexible-Price M Odel

Money, Prices, and Inflation

The Sticky-Price Income-Expenditure Framework: Consumption and the Multiplier

Investment, Net Exports, and Interest Rates: The Is Curve

The Phillips Curve, Expectations, and Monetary Policy

Stabilization Policy

Budget Balance, National Debt, and Investment

International Economic Policy

Changes in the Macroeconomy and Changes in Macroeconomic Policy

The Future of Macroeconomics

Epilogue

Filters

The demand-for-money function (M^d/P) is

An increase in the money supply will shift the LM curve to the _ and the __