Question 1

Macroeconomic equilibrium requires ________.

Accepted Answer

A) equilibrium in the goods market 
B) equilibrium in the money market 
C) equilibrium in both the goods and money markets 
D) equilibrium in neither the goods nor the money market 
A) equilibrium in the goods market 
B) equilibrium in the money market 
C) equilibrium in both the goods and money markets 
D) equilibrium in neither the goods nor the money market

Question 2

In the Keynesian framework,as long as output is ________ the equilibrium level,unplanned inventory investment will remain negative 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 3

A tax cut initially

Accepted Answer

A) increases consumption expenditure by an amount greater than the tax cut. 
B) increases consumption expenditure by an amount equal to the tax cut. 
C) increases consumption expenditure by an amount that is less than the value of the tax cut. 
D) has no effect on consumption expenditure. 
E) reduces consumption expenditure by an amount that is less than the value of the tax cut. 
A) increases consumption expenditure by an amount greater than the tax cut. 
B) increases consumption expenditure by an amount equal to the tax cut. 
C) increases consumption expenditure by an amount that is less than the value of the tax cut. 
D) has no effect on consumption expenditure. 
E) reduces consumption expenditure by an amount that is less than the value of the tax cut.

Question 4

For a marginal propensity to consume of 0.75,the value of the multiplier is

Accepted Answer

A) 0.25. 
B) 3.00. 
C) 3.75. 
D) 4.00. 
A) 0.25. 
B) 3.00. 
C) 3.75. 
D) 4.00.

Question 5

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 6

Aggregate demand in an economy with no government or foreign trade is

Accepted Answer

A) consumer expenditure plus actual investment. 
B) consumer expenditure plus planned investment. 
C) consumer expenditure plus inventory investment. 
D) consumer expenditure plus fixed investment. 
A) consumer expenditure plus actual investment. 
B) consumer expenditure plus planned investment. 
C) consumer expenditure plus inventory investment. 
D) consumer expenditure plus fixed investment.

Question 7

Which of the following statements concerning Keynesian analysis are true?

Accepted Answer

A) Keynes's analysis started with the recognition that the total quantity demanded of an economy's output was the sum of four types of spending: consumer expenditure,planned investment spending,federal government spending,and state and local government spending. 
B) Keynes recognized that equilibrium would occur in the economy when total quantity of output supplied (aggregate output produced)equals quantity of output demanded (Yad),that is,when Y = Yad 
C) Keynes's analysis involves explaining why wage rates are at a certain level by understanding what factors affect labor demand and why this could cause output to be greater than the economy is capable of producing,resulting in high inflation. 
D) Keynes's analysis explains how the price level will change when the total quantity of output supplied changes. 
A) Keynes's analysis started with the recognition that the total quantity demanded of an economy's output was the sum of four types of spending: consumer expenditure,planned investment spending,federal government spending,and state and local government spending. 
B) Keynes recognized that equilibrium would occur in the economy when total quantity of output supplied (aggregate output produced)equals quantity of output demanded (Yad),that is,when Y = Yad 
C) Keynes's analysis involves explaining why wage rates are at a certain level by understanding what factors affect labor demand and why this could cause output to be greater than the economy is capable of producing,resulting in high inflation. 
D) Keynes's analysis explains how the price level will change when the total quantity of output supplied changes.

Question 8

If aggregated demand is less than actual output,unplanned inventory ________ will cause output to ________.

Accepted Answer

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

Question 9

Keynes believed that changes in autonomous spending were dominated by changes in

Accepted Answer

A) consumer expenditure. 
B) autonomous consumer expenditure. 
C) investment spending. 
D) taxes. 
E) none of the above. 
A) consumer expenditure. 
B) autonomous consumer expenditure. 
C) investment spending. 
D) taxes. 
E) none of the above.

Question 10

If the economy is on the LM curve,but is to the right of the IS curve,then the ________ market is in equilibrium,but aggregate ________ exceeds aggregate ________.

Accepted Answer

A) goods; output; demand 
B) goods; demand; output 
C) money; output; demand 
D) money; demand; output 
A) goods; output; demand 
B) goods; demand; output 
C) money; output; demand 
D) money; demand; output

Question 11

In an open economy,aggregate demand is the sum of

Accepted Answer

A) consumer expenditure,actual investment spending,and government spending. 
B) consumer expenditure,planned investment spending,and government spending. 
C) consumer expenditure,actual investment spending,government spending,and net exports. 
D) consumer expenditure,planned investment spending,government spending,and net exports. 
A) consumer expenditure,actual investment spending,and government spending. 
B) consumer expenditure,planned investment spending,and government spending. 
C) consumer expenditure,actual investment spending,government spending,and net exports. 
D) consumer expenditure,planned investment spending,government spending,and net exports.

Question 12

Planned investment spending,a component of aggregate demand,is equal to

Accepted Answer

A) fixed investment plus actual inventory investment. 
B) fixed investment plus unplanned inventory investment. 
C) fixed investment. 
D) fixed investment plus planned inventory investment. 
A) fixed investment plus actual inventory investment. 
B) fixed investment plus unplanned inventory investment. 
C) fixed investment. 
D) fixed investment plus planned inventory investment.

Question 13

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 14

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 planned investment decreases by $100,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.

Question 15

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 16

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

Question 17

In the Keynesian model the quantity of money demanded is ________ related to income and ________ related to the interest rate.

Accepted Answer

A) positively; positively 
B) positively; negatively 
C) negatively; negatively 
D) negatively; positively 
A) positively; positively 
B) positively; negatively 
C) negatively; negatively 
D) negatively; positively

Question 18

If the economy is on the LM curve,but is to the right 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 19

If aggregate demand is less than the level of aggregate output,then ________ inventory investment will be ________.

Accepted Answer

A) planned; positive 
B) actual; positive 
C) actual; negative 
D) planned; negative 
A) planned; positive 
B) actual; positive 
C) actual; negative 
D) planned; negative

Question 20

Everything else held constant,if consumption expenditure increases by 65 for a 100 increase in disposable income,the mpc is

Accepted Answer

A) 0. 
B) 0.5. 
C) 0.65. 
D) 1. 
A) 0. 
B) 0.5. 
C) 0.65. 
D) 1.

Exam 20: The Islm Model

Macroeconomic equilibrium requires ________.

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

A tax cut initially

For a marginal propensity to consume of 0.75,the value of the multiplier is

When the interest rate rises,________.

Aggregate demand in an economy with no government or foreign trade is

Which of the following statements concerning Keynesian analysis are true?

If aggregated demand is less than actual output,unplanned inventory ________ will cause output to ________.

Keynes believed that changes in autonomous spending were dominated by changes in

If the economy is on the LM curve,but is to the right of the IS curve,then the ________ market is in equilibrium,but aggregate ________ exceeds aggregate ________.

In an open economy,aggregate demand is the sum of

Planned investment spending,a component of aggregate demand,is equal to

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.

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

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

In the Keynesian model the quantity of money demanded is ________ related to income and ________ related to the interest rate.

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

If aggregate demand is less than the level of aggregate output,then ________ inventory investment will be ________.

Everything else held constant,if consumption expenditure increases by 65 for a 100 increase in disposable income,the mpc is

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

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

If aggregated demand is less than actual output,unplanned inventory will cause output to .

If the economy is on the LM curve,but is to the right of the IS curve,then the market is in equilibrium,but aggregate exceeds aggregate .

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.

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

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

In the Keynesian model the quantity of money demanded is related to income and related to the interest rate.

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

If aggregate demand is less than the level of aggregate output,then inventory investment will be .