Question 1

Everything else held constant,if aggregate output is to the ________ of the LM curve,then there is an excess ________ of money which will cause the interest rate 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 C

Question 2

Use the following situation (20-2) to answer the question : 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) -$1,000. 
B) -$100. 
C) $100. 
D) $1,000. 
A) -$1,000. 
B) -$100. 
C) $100. 
D) $1,000. D

Question 3

Keynes argued that the sum of the components that comprise aggregate demand

Accepted Answer

A) could add up to an output smaller than the economy is capable of producing,thus resulting in less than full employment. 
B) could add up to an output greater than the economy is capable of producing,thus resulting in less than full employment. 
C) always equaled the output the economy is capable of producing. 
D) equaled the output the economy is capable of producing by definition. 
A) could add up to an output smaller than the economy is capable of producing,thus resulting in less than full employment. 
B) could add up to an output greater than the economy is capable of producing,thus resulting in less than full employment. 
C) always equaled the output the economy is capable of producing. 
D) equaled the output the economy is capable of producing by definition. A

Question 4

Use the following situation (20-1) to answer the question : 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 in Situation 20-1,the equilibrium level of aggregate output is

Accepted Answer

A) $900 
B) $8,000 
C) $9,000 
D) $10,000 
A) $900 
B) $8,000 
C) $9,000 
D) $10,000

Question 5

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 6

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 7

Everything else held constant,if consumption expenditure falls by 160 when disposable income falls by 200,the mpc is

Accepted Answer

A) 0. 
B) 0.2. 
C) 0.4. 
D) 0.8. 
A) 0. 
B) 0.2. 
C) 0.4. 
D) 0.8.

Question 8

If unplanned investment is positive,firms will ________ production and output will ________.

Accepted Answer

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

Question 9

Assume that disposable income equals $1000 and the mpc equals 0.6.If total consumption equal $800,then autonomous consumption is equal to

Accepted Answer

A) $0. 
B) $200. 
C) $800. 
D) $1000. 
A) $0. 
B) $200. 
C) $800. 
D) $1000.

Question 10

Use the following situation (20-1) to answer the question : 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 autonomous consumption increases by $100,then equilibrium aggregate output will change by

Accepted Answer

A) -$1,000. 
B) -$100. 
C) $100. 
D) $1,000. 
A) -$1,000. 
B) -$100. 
C) $100. 
D) $1,000.

Question 11

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

Accepted Answer

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

Question 12

If the income multiplier is 2,the value of the marginal propensity to consume is

Accepted Answer

A) 0.2. 
B) 0.5. 
C) 0.75. 
D) 1. 
A) 0.2. 
B) 0.5. 
C) 0.75. 
D) 1.

Question 13

A decrease 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 14

If the marginal propensity to consume is .9,the value of the multiplier is

Accepted Answer

A) 0. 
B) 1. 
C) 9. 
D) 10. 
A) 0. 
B) 1. 
C) 9. 
D) 10.

Question 15

If unplanned investment is negative,firms will ________ production and output will ________.

Accepted Answer

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

Question 16

The expenditure multiplier is the ratio of the change in ________ to a change in the ________.

Accepted Answer

A) equilibrium output; monetary base. 
B) the money supply; monetary base. 
C) the money supply; autonomous expenditure. 
D) equilibrium output; autonomous expenditure. 
A) equilibrium output; monetary base. 
B) the money supply; monetary base. 
C) the money supply; autonomous expenditure. 
D) equilibrium output; autonomous expenditure.

Question 17

When the interest rate is ________,________ investments in physical capital will earn more than the cost of borrowed funds,so planned investment spending is ________.

Accepted Answer

A) high; few; high 
B) high; few; low 
C) low; few; high 
D) low; many; low 
E) high; many; high 
A) high; few; high 
B) high; few; low 
C) low; few; high 
D) low; many; low 
E) high; many; high

Question 18

Everything else held constant,if aggregate output is to the left of the LM curve,then there is an excess ________ of money which will cause the interest rate to ________.

Accepted Answer

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

Question 19

Keynes mentioned two factors that influenced planned investment spending:

Accepted Answer

A) interest rates and disposable income. 
B) interest rates and business expectations about the future. 
C) disposable income and business expectations about the future. 
D) interest rates and business expectations about inflation. 
A) interest rates and disposable income. 
B) interest rates and business expectations about the future. 
C) disposable income and business expectations about the future. 
D) interest rates and business expectations about inflation.

Question 20

After witnessing the events in the Great Depression,Keynes took the view that an economy would continually suffer major output fluctuations because of the volatility of

Accepted Answer

A) autonomous spending,particularly planned investment spending. 
B) induced spending,particularly consumer expenditures. 
C) autonomous spending,particularly consumer expenditures. 
D) autonomous spending,particularly government expenditures. 
A) autonomous spending,particularly planned investment spending. 
B) induced spending,particularly consumer expenditures. 
C) autonomous spending,particularly consumer expenditures. 
D) autonomous spending,particularly government expenditures.

Exam 20: The Islm Model

Everything else held constant,if aggregate output is to the ________ of the LM curve,then there is an excess ________ of money which will cause the interest rate to fall.

Keynes argued that the sum of the components that comprise aggregate demand

Use the following situation (20-1) to answer the question : 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 in Situation 20-1,the equilibrium level of aggregate output is

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

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

Everything else held constant,if consumption expenditure falls by 160 when disposable income falls by 200,the mpc is

If unplanned investment is positive,firms will ________ production and output will ________.

Assume that disposable income equals $1000 and the mpc equals 0.6.If total consumption equal $800,then autonomous consumption is equal to

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

If the income multiplier is 2,the value of the marginal propensity to consume is

A decrease in interest rates ________.

If the marginal propensity to consume is .9,the value of the multiplier is

If unplanned investment is negative,firms will ________ production and output will ________.

The expenditure multiplier is the ratio of the change in ________ to a change in the ________.

When the interest rate is ________,________ investments in physical capital will earn more than the cost of borrowed funds,so planned investment spending is ________.

Everything else held constant,if aggregate output is to the left of the LM curve,then there is an excess ________ of money which will cause the interest rate to ________.

Keynes mentioned two factors that influenced planned investment spending:

After witnessing the events in the Great Depression,Keynes took the view that an economy would continually suffer major output fluctuations because of the volatility of

Why Study Money, Banking, and Financial Markets

An Overview of the Financial System

What Is Money

Understanding Interest Rates

The Behavior 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

Financial Crises and the Subprime Meltdown

Banking and the Management of Financial Institutions

Economic Analysis of Financial Regulation

Banking Industry: Structure and Competition

Central Banks and the Federal Reserve System

The Money Supply Process

Tools for Monetary Policy

The Conduct of Monetary Policy: Strategy and Tactics

The Foreign Exchange Market

The International Financial System

The Demand for Money

Monetary and Fiscal Policy in the ISLM Model

Aggregate Demand and Supply Analysis

Transmission Mechanisms of Monetary Policy: The Evidence

Money and Inflation

Rational Expectations: Implications for Policy

Filters

Everything else held constant,if aggregate output is to the of the LM curve,then there is an excess of money which will cause the interest rate to fall.

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

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 unplanned investment is positive,firms will production and output will .

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

If unplanned investment is negative,firms will production and output will .

The expenditure multiplier is the ratio of the change in to a change in the .

When the interest rate is , investments in physical capital will earn more than the cost of borrowed funds,so planned investment spending is .

Everything else held constant,if aggregate output is to the left of the LM curve,then there is an excess of money which will cause the interest rate to .