Question 1

The ________ describes the combinations of interest rates and aggregate output for which the quantity of money demanded equals the quantity of money supplied.

Accepted Answer

A) IS curve 
B) LM curve 
C) consumption function 
D) investment schedule 
A) IS curve 
B) LM curve 
C) consumption function 
D) investment schedule

Question 2

Keynes believed that an economy could attain an equilibrium level of output

Accepted Answer

A) only at the full-employment level of output. 
B) below the full-employment level of output. 
C) only if the government took a "hands off" approach. 
D) only if prices were falling. 
A) only at the full-employment level of output. 
B) below the full-employment level of output. 
C) only if the government took a "hands off" approach. 
D) only if prices were falling.

Question 3

When interest rates fall in the United States (with the price level fixed),the value of the dollar ________,domestic goods become ________ expensive,and net exports ________.

Accepted Answer

A) falls; less; fall 
B) falls; less; rise 
C) falls; more; fall 
D) rises; less; fall 
A) falls; less; fall 
B) falls; less; rise 
C) falls; more; fall 
D) rises; less; fall

Question 4

Everything else held constant,if aggregate output is to the right 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 5

The money market is in equilibrium ________.

Accepted Answer

A) at any point on the IS curve 
B) at any point on the LM curve 
C) at only one point on the LM curve 
D) only at the intersection of the IS and LM curves 
A) at any point on the IS curve 
B) at any point on the LM curve 
C) at only one point on the LM curve 
D) only at the intersection of the IS and LM curves

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

If the economy is on the IS curve,but is to the right of the LM curve,aggregate output will ________ and the interest rate will ________.

Accepted Answer

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

Question 8

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

Question 9

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 10

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 11

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 12

The ________ traces out the points for which total quantity of goods produced equals total quantity of goods demanded.

Accepted Answer

A) LM curve 
B) IS curve 
C) consumption function 
D) investment schedule 
A) LM curve 
B) IS curve 
C) consumption function 
D) investment schedule

Question 13

If the economy is on the IS curve,but is to the left of the LM curve,aggregate output will ________ and the interest rate will ________.

Accepted Answer

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

Question 14

The marginal propensity to consume (mpc)can be defined as the fraction of

Accepted Answer

A) a change in income that is spent. 
B) a change in income that is saved. 
C) income that is spent. 
D) income that is saved. 
A) a change in income that is spent. 
B) a change in income that is saved. 
C) income that is spent. 
D) income that is saved.

Question 15

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

Accepted Answer

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

Question 16

As interest rates rise,the opportunity cost of holding money ________ and the demand for money ________.

Accepted Answer

A) rises; rises 
B) rises; falls 
C) falls; rises 
D) falls; falls 
A) rises; rises 
B) rises; falls 
C) falls; rises 
D) falls; falls

Question 17

If the economy is on the LM curve,but is to the left of the IS curve,aggregate output will ________ and the interest rate will ________.

Accepted Answer

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

Question 18

Keynes was especially concerned with explaining the

Accepted Answer

A) recession of 1920-21. 
B) low levels of output and employment during the Great Depression. 
C) strong economic growth of the 1920s. 
D) high unemployment in Great Britain during the 1920s. 
A) recession of 1920-21. 
B) low levels of output and employment during the Great Depression. 
C) strong economic growth of the 1920s. 
D) high unemployment in Great Britain during the 1920s.

Question 19

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 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 20

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 taxes increase by $10,then the equilibrium aggregate output will change by

Accepted Answer

A) -$90. 
B) -$10. 
C) $10. 
D) $90. 
A) -$90. 
B) -$10. 
C) $10. 
D) $90.

Exam 20: The Islm Model

The ________ describes the combinations of interest rates and aggregate output for which the quantity of money demanded equals the quantity of money supplied.

Keynes believed that an economy could attain an equilibrium level of output

When interest rates fall in the United States (with the price level fixed),the value of the dollar ________,domestic goods become ________ expensive,and net exports ________.

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

The money market is in equilibrium ________.

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 ________.

If the economy is on the IS curve,but is to the right of the LM curve,aggregate output will ________ and the interest rate will ________.

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

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

An increase in interest rates ________.

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

The ________ traces out the points for which total quantity of goods produced equals total quantity of goods demanded.

If the economy is on the IS curve,but is to the left of the LM curve,aggregate output will ________ and the interest rate will ________.

The marginal propensity to consume (mpc)can be defined as the fraction of

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

As interest rates rise,the opportunity cost of holding money ________ and the demand for money ________.

If the economy is on the LM curve,but is to the left of the IS curve,aggregate output will ________ and the interest rate will ________.

Keynes was especially concerned with explaining the

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 rise.

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

When interest rates fall in the United States (with the price level fixed),the value of the dollar ,domestic goods become expensive,and net exports .

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

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 .

If the economy is on the IS curve,but is to the right of the LM curve,aggregate output will and the interest rate will .

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

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

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

If the economy is on the IS curve,but is to the left of the LM curve,aggregate output will and the interest rate will .

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

As interest rates rise,the opportunity cost of holding money and the demand for money .

If the economy is on the LM curve,but is to the left of the IS curve,aggregate output will and the interest rate will .

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 rise.