Question 1

If the risk premium 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 2

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

Accepted Answer

A)  what do we mean by "money-market equilibrium"? 
B)  what is the IS-LM framework? 
C)  what determines the level of potential output? 
D)  what is an LM shock to the economy? 
A)  what do we mean by "money-market equilibrium"? 
B)  what is the IS-LM framework? 
C)  what determines the level of potential output? 
D)  what is an LM shock to the economy?

Question 3

An increase in total income will

Accepted Answer

A)  shift the money demand curve to the left, resulting in a decrease in the short-term nominal interest rate. 
B)  shift the money supply curve to the right, resulting in a decrease in the short-term nominal interest rate. 
C)  shift the money supply curve to the left, resulting in an increase in the short-term nominal interest rate. 
D)  shift the money demand curve to the right, resulting in an increase in the short-term nominal interest rate. 
A)  shift the money demand curve to the left, resulting in a decrease in the short-term nominal interest rate. 
B)  shift the money supply curve to the right, resulting in a decrease in the short-term nominal interest rate. 
C)  shift the money supply curve to the left, resulting in an increase in the short-term nominal interest rate. 
D)  shift the money demand curve to the right, resulting in an increase in the short-term nominal interest rate.

Question 4

If the level of government purchases 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 increase 
D)  the LM curve will shift to the right 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 right and the equilibrium levels of the real interest rate and real GDP will increase 
D)  the LM curve will shift to the right and the equilibrium levels of the real interest rate and real GDP will increase.

Question 5

If the price level decreases so that the real 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 left and the equilibrium level of the real interest rate will increase and the equilibrium level of 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 left and the equilibrium level of the real interest rate will increase and the equilibrium level of 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 6

A decrease in nominal income will

Accepted Answer

A)  shift the money demand curve to the left, resulting in a decrease in the short-term nominal interest rate. 
B)  shift the money supply curve to the right, resulting in a decrease in the short-term nominal interest rate. 
C)  shift the money supply curve to the left, resulting in an increase in the short-term nominal interest rate. 
D)  shift the money demand curve to the right, resulting in an increase in the short-term nominal interest rate. 
A)  shift the money demand curve to the left, resulting in a decrease in the short-term nominal interest rate. 
B)  shift the money supply curve to the right, resulting in a decrease in the short-term nominal interest rate. 
C)  shift the money supply curve to the left, resulting in an increase in the short-term nominal interest rate. 
D)  shift the money demand curve to the right, resulting in an increase in the short-term nominal interest rate.

Question 7

An increase in the money supply will

Accepted Answer

A)  shift the money demand curve to the left, resulting in a decrease in the short-term nominal interest rate. 
B)  shift the money supply curve to the right, resulting in a decrease in the short-term nominal interest rate. 
C)  shift the money supply curve to the left, resulting in an increase in the short-term nominal interest rate. 
D)  shift the money demand curve to the right, resulting in an increase in the short-term nominal interest rate. 
A)  shift the money demand curve to the left, resulting in a decrease in the short-term nominal interest rate. 
B)  shift the money supply curve to the right, resulting in a decrease in the short-term nominal interest rate. 
C)  shift the money supply curve to the left, resulting in an increase in the short-term nominal interest rate. 
D)  shift the money demand curve to the right, resulting in an increase in the short-term nominal interest rate.

Question 8

If the risk premium increases,

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

Any change in the interest sensitivity of investment spending, of the interest sensitivity of the exchange rate, or the exchange rate sensitivity of exports

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 10

Each of the following is a fact about household and business demand for money except

Accepted Answer

A)  money demand is proportional to total nominal income. 
B)  money demand has a time trend, the result of slow changes in banking-sector structure and technology. 
C)  money demand is inversely related to the long-term real interest rate. 
D)  money demand is inversely related to the nominal interest rate. 
A)  money demand is proportional to total nominal income. 
B)  money demand has a time trend, the result of slow changes in banking-sector structure and technology. 
C)  money demand is inversely related to the long-term real interest rate. 
D)  money demand is inversely related to the nominal interest rate.

Question 11

The analysis of Chapter 10 is not complete because it lacks a theory as to how the

Accepted Answer

A)  level of aggregate demand is determined. 
B)  real exchange rate is determined. 
C)  real interest rate is determined when the money stock is fixed. 
D)  short-term nominal interest rate is determined. 
A)  level of aggregate demand is determined. 
B)  real exchange rate is determined. 
C)  real interest rate is determined when the money stock is fixed. 
D)  short-term nominal interest rate is determined.

Question 12

If the baseline level of autonomous spending 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 increase 
D)  the LM curve will shift to the right 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 right and the equilibrium levels of the real interest rate and real GDP will increase 
D)  the LM curve will shift to the right and the equilibrium levels of the real interest rate and real GDP will increase.

Question 13

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 level of real GDP would be

Accepted Answer

A)  $8300 billion. 
B)  $8700 billion. 
C)  $6217 billion. 
D)  $5933 billion. 
A)  $8300 billion. 
B)  $8700 billion. 
C)  $6217 billion. 
D)  $5933 billion.

Question 14

The real money demand curve is downward sloping because

Accepted Answer

A)  real money demand is inversely related to total nominal income. 
B)  real money demand is inversely related to the short-term nominal interest rate. 
C)  real money demand is inversely related to a time trend. 
D)  real money demand is inversely related to the real money supply. 
A)  real money demand is inversely related to total nominal income. 
B)  real money demand is inversely related to the short-term nominal interest rate. 
C)  real money demand is inversely related to a time trend. 
D)  real money demand is inversely related to the real money supply.

Question 15

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 real interest rate would be

Accepted Answer

A)  6.8%. 
B)  5.2%. 
C)  2.7%. 
D)  4.4%. 
A)  6.8%. 
B)  5.2%. 
C)  2.7%. 
D)  4.4%.

Question 16

If the expected rate of inflation increases, the risk premium decreases, or the term premium decreases,

Accepted Answer

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

Question 17

A decrease in the money supply will

Accepted Answer

A)  shift the money demand curve to the left, resulting in a decrease in the short-term nominal interest rate. 
B)  shift the money supply curve to the right, resulting in a decrease in the short-term nominal interest rate. 
C)  shift the money supply curve to the left, resulting in an increase in the short-term nominal interest rate. 
D)  shift the money demand curve to the right, resulting in an increase in the short-term nominal interest rate. 
A)  shift the money demand curve to the left, resulting in a decrease in the short-term nominal interest rate. 
B)  shift the money supply curve to the right, resulting in a decrease in the short-term nominal interest rate. 
C)  shift the money supply curve to the left, resulting in an increase in the short-term nominal interest rate. 
D)  shift the money demand curve to the right, resulting in an increase in the short-term nominal interest rate.

Question 18

An increase in the price level will

Accepted Answer

A)  shift the money demand curve to the left, resulting in a decrease in the short-term nominal interest rate. 
B)  shift the money supply curve to the right, resulting in a decrease in the short-term nominal interest rate. 
C)  shift the money supply curve to the left, resulting in an increase in the short-term nominal interest rate. 
D)  shift the money demand curve to the right, resulting in an increase in the short-term nominal interest rate. 
A)  shift the money demand curve to the left, resulting in a decrease in the short-term nominal interest rate. 
B)  shift the money supply curve to the right, resulting in a decrease in the short-term nominal interest rate. 
C)  shift the money supply curve to the left, resulting in an increase in the short-term nominal interest rate. 
D)  shift the money demand curve to the right, resulting in an increase in the short-term nominal interest rate.

Question 19

If there is excess money demand or money supply in the money market,

Accepted Answer

A)  the short-term nominal interest rate will adjust to bring about equilibrium. 
B)  the price level will adjust to bring about equilibrium. 
C)  the supply of money will adjust to bring about equilibrium. 
D)  the money demand curve will shift to bring about equilibrium. 
A)  the short-term nominal interest rate will adjust to bring about equilibrium. 
B)  the price level will adjust to bring about equilibrium. 
C)  the supply of money will adjust to bring about equilibrium. 
D)  the money demand curve will shift to bring about equilibrium.

Question 20

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

Accepted Answer

A)  how are the determinants of the money supply different in a sticky-price than in a flexible-price model? 
B)  what is an aggregate demand - AD - curve? 
C)  how is the equilibrium level of real GDP determined when the money stock is constant? 
D)  what is the aggregate supply curve - AS - curve? 
A)  how are the determinants of the money supply different in a sticky-price than in a flexible-price model? 
B)  what is an aggregate demand - AD - curve? 
C)  how is the equilibrium level of real GDP determined when the money stock is constant? 
D)  what is the aggregate supply curve - AS - curve?

If the risk premium decreases,

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

An increase in total income will

If the level of government purchases increases,

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

A decrease in nominal income will

An increase in the money supply will

If the risk premium increases,

Any change in the interest sensitivity of investment spending, of the interest sensitivity of the exchange rate, or the exchange rate sensitivity of exports

Each of the following is a fact about household and business demand for money except

The analysis of Chapter 10 is not complete because it lacks a theory as to how the

If the baseline level of autonomous spending increases,

The real money demand curve is downward sloping because

If the expected rate of inflation increases, the risk premium decreases, or the term premium decreases,

A decrease in the money supply will

An increase in the price level will

If there is excess money demand or money supply in the money market,

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

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 the risk premium decreases,

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

An increase in total income will

If the level of government purchases increases,

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

A decrease in nominal income will

An increase in the money supply will

If the risk premium increases,

Any change in the interest sensitivity of investment spending, of the interest sensitivity of the exchange rate, or the exchange rate sensitivity of exports

Each of the following is a fact about household and business demand for money except

The analysis of Chapter 10 is not complete because it lacks a theory as to how the

If the baseline level of autonomous spending increases,

The real money demand curve is downward sloping because

If the expected rate of inflation increases, the risk premium decreases, or the term premium decreases,

A decrease in the money supply will

An increase in the price level will

If there is excess money demand or money supply in the money market,

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

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