Question 1

In a large open economy, an increase in government spending will lead in the long run to

Accepted Answer

A) a lower equilibrium real interest rate. 
B) a permanently lower price level. 
C) a decrease in net exports. 
D) a permanently higher level of real output.

Question 2

Analyze the effect of the rise of retailing on the Internet in terms of the long-run equilibrium in the IS-LM-FE model.

Accepted Answer

The answer of Analyze the effect of the rise of...

Question 3

Many economists believe that changes in the money supply

Accepted Answer

A) affect the real economy in the short run, but not in the long run. 
B) affect the real economy in the long run, but not in the short run. 
C) affect the real economy in both the long run and the short run. 
D) affect the real economy in neither the long run nor the short run.

Question 4

Economists generally believe that prices are

Accepted Answer

A) always perfectly flexible. 
B) always perfectly inflexible. 
C) more flexible in the short run than in the long run. 
D) more flexible in the long run than in the short run.

Question 5

In a large open economy, an increase in productivity will lead in the long run to

Accepted Answer

A) an increase in the real interest rate. 
B) an increase in the current account balance. 
C) an increase in the price level. 
D) a decrease in investment spending.

Question 6

Which of the following would NOT cause the IS curve to shift to the left?

Accepted Answer

A) A decrease in government purchases 
B) An increase in consumer confidence 
C) A decrease in foreign demand for domestic products 
D) A decrease in the expected future profitability of capital

Question 7

In macroeconomic models, Y stands for

Accepted Answer

A) only aggregate output. 
B) only aggregate income. 
C) only aggregate output or aggregate income. 
D) either aggregate output or aggregate income or the volume of transactions.

Question 8

In the long run, a permanent increase in government spending will

Accepted Answer

A) lead to a permanently higher level of real output. 
B) lead to a permanently higher price level. 
C) lead to a permanently higher level of investment spending. 
D) have no effect on the level of output, the price level, or the level of investment spending.

Question 9

An increase in the price level

Accepted Answer

A) decreases real money balances and shifts the LM curve down and to the right. 
B) increases real money balances and shifts the LM curve up and to the left. 
C) decreases real money balances and shifts the LM curve up and to the left. 
D) increases real money balances and shifts the LM curve down and to the right.

Question 10

Suppose that computer hackers are able to steal the credit card numbers of a large number of people from the Internet. How is the LM curve likely to respond if the money supply doesn't change?

Accepted Answer

The answer of Suppose that computer hackers are able to...

Question 11

If government purchases decrease, the IS curve will

Accepted Answer

A) shift to the left and intersect the FE line at a higher real interest rate. 
B) shift to the right and intersect the FE line at a lower real interest rate. 
C) shift to the left and intersect the FE line at a lower real interest rate. 
D) shift to the right and intersect the FE line at a higher real interest rate.

Question 12

In general equilibrium, an increase in the money supply leads to

Accepted Answer

A) lower interest rates. 
B) higher GDP. 
C) higher price level. 
D) higher interest rates.

Question 13

Which of the following will NOT cause the LM curve to shift?

Accepted Answer

A) An increase in the expected inflation rate 
B) A decline in the nominal return on money 
C) A decline in real output 
D) An increase in the aggregate price level

Question 14

Purchases and sales of stocks, bonds, and houses take place

Accepted Answer

A) only in general equilibrium. 
B) in the goods market. 
C) in the money market. 
D) in the nonmoney asset market.

Question 15

In a closed economy, if the goods market is in equilibrium, national saving is $2 trillion, national consumption is $7 trillion, and government purchases are $2.5 trillion, then GDP equals

Accepted Answer

A) $7 trillion. 
B) $9.5 trillion. 
C) $11.5 trillion. 
D) Not enough information has been provided to determine the answer.

Question 16

At a point above the IS curve,

Accepted Answer

A) saving exceeds investment. 
B) the real interest rate is below its equilibrium level. 
C) there is an excess demand for goods. 
D) there is a federal budget deficit.

Question 17

At a point above the LM curve,

Accepted Answer

A) there is an excess demand for money. 
B) there is an excess demand for nonmoney assets. 
C) the real interest rate is below its equilibrium level. 
D) there is an excess demand for goods.

Question 18

Which of the following would NOT cause a shift in the IS curve?

Accepted Answer

A) An increase in the domestic real interest rate 
B) An increase in consumer confidence 
C) A decrease in the expected future profitability of capital 
D) A decrease in government purchases

Question 19

Which of the following is NOT a key factor in determining household saving?

Accepted Answer

A) The expected real rate of interest 
B) The level of government purchases 
C) Current income 
D) Expected future income

Question 20

In a closed economy, the total quantity of goods demanded equals the sum of

Accepted Answer

A) consumption spending, investment spending, and government spending. 
B) consumption spending, national saving, and taxes. 
C) consumption spending, government spending, and taxes. 
D) investment spending, national saving, and taxes.

Exam 24: Linking the Financial System and the Economy: the Is-Lm-Fe Model