EC 309 Quiz 8

B) upward and to the right.

An increase in government spending generally shifts the IS curve, drawn with income along the horizontal axis and the interest rate along the vertical axis: A) downward and to the left. B) upward and to the right. C) upward and to the left. D) downward and to the right.

A) raises

At a given interest rate, an increase in the nominal money supply ______ the level of income that is consistent with equilibrium in the market for real balances. A) raises B) lowers C) does not change D) may either raise or lower

B) upward and to the left.

A decrease in the real money supply, other things being equal, will shift the LM curve: A) downward and to the left. B) upward and to the left. C) downward and to the right. D) upward and to the right.

C) interest rates and income, which bring equilibrium in the market for real money balances.

An LM curve shows combinations of: A) taxes and government spending. B) nominal money balances and price levels. C) interest rates and income, which bring equilibrium in the market for real money balances. D) interest rates and income, which bring equilibrium in the market for goods and services.

C) G divided by the quantity one minus the marginal propensity to consume.

According to the Keynesian-cross analysis, when there is a shift upward in the government-purchases schedule by an amount G and the planned expenditure schedule by an equal amount, then equilibrium income rises by: A) one unit. B) G. C) G divided by the quantity one minus the marginal propensity to consume. D) G multiplied by the quantity one plus the marginal propensity to consume.

A) increases; increases

According to the quantity equation, if velocity is not assumed to be constant and the money supply is held constant, then an increase in the interest rate ______ velocity and ______ income. A) increases; increases B) increases; decreases C) decreases; decreases D) decreases; increases

A) increase; increase

According to the theory of liquidity preference, holding the supply of real money balances constant, an increase in income will ______ the demand for real money balances and will ______ the interest rate. A) increase; increase B) increase; decrease C) decrease; decrease D) decrease; increase

A) is chosen by the central bank.

According to the theory of liquidity preference, the supply of nominal money balances: A) is chosen by the central bank. B) depends on the interest rate. C) varies with the price level. D) changes as the level of income changes.

D) is fixed.

According to the theory of liquidity preference, the supply of real money balances: A) decreases as the interest rate increases. B) increases as the interest rate increases. C) increases as income increases. D) is fixed.

B) raises income.

For any given interest rate and price level, an increase in the money supply: A) lowers income. B) raises income. C) has no effect on income. D) lowers velocity

D) planned investment, government spending, and consumption expenditures.

For the purposes of the Keynesian cross, planned expenditure consists of: A) planned investment. B) planned government spending. C) planned investment and government spending. D) planned investment, government spending, and consumption expenditures.

D) decreases; increases

In the Keynesian-cross model, as the interest rate increases, the equilibrium level of income ______, whereas in the loanable funds model, as the level of income increases, the equilibrium level of the interest rate ______. A) increases; increases B) increases; decreases C) decreases; decreases D) decreases; increases

B) increases by more than 250.

In the Keynesian-cross model, if taxes are reduced by 250, then the equilibrium level of income: A) increases by 250. B) increases by more than 250. C) decreases by 250. D) increases, but by less than 250.

A) only in the short run.

The IS-LM model is generally used: A) only in the short run. B) only in the long run. C) both in the short run and the long run. D) in determining the price level.

D) negatively related to the interest rate and positively related to income.

The theory of liquidity preference implies that the quantity of real money balances demanded is: A) negatively related to both the interest rate and income. B) positively related to both the interest rate and income. C) positively related to the interest rate and negatively related to income. D) negatively related to the interest rate and positively related to income.

A) lower the interest rate.

The theory of liquidity preference implies that, other things being equal, an increase in the real money supply will: A) lower the interest rate. B) raise the interest rate. C) have no effect on the interest rate. D) first lower and then raise the interest rate.

D) slopes downward and to the right.

When drawn on a graph with income along the horizontal axis and the interest rate along the vertical axis, the IS curve generally: A) is vertical. B) is horizontal. C) slopes upward and to the right. D) slopes downward and to the right.

B) lay off workers and reduce production.

When firms experience unplanned inventory accumulation, they typically: A) build new plants. B) lay off workers and reduce production. C) hire more workers and increase production. D) call for more government spending.

B) right; accumulation

With planned expenditure and the equilibrium condition Y= E drawn on a graph with income along the horizontal axis, if income exceeds expenditure, then income is to the ______ of equilibrium income and there is unplanned inventory ______. A) right; decumulation B) right; accumulation C) left; decumulation D) left; accumulation