EC 309 ch 12 & 13 Midterm 3

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In the Keynesian-cross model, if taxes increase by 100, then planned expenditures..... for any given level of income.

decrease by less than 100

Following the 2017 contractionary fiscal policy by the Trump administration, the real GDP growth... between 2018 and 2019, while the unemployment rate...

decreased, increased

Following the 2017 spending cuts by the Trump administration, the real GDP growth... between 2018 and 2019, while the unemployment rate...

decreased, increased

Following the 2017 tax increases by the Trump administration, the real GDP growth.... between 2018 and 2019, while the unemployment rate....

decreased, increased

In the Keynesian-cross model with an MPC is greater than 0, if government purchases decrease by 250, then the equilibrium level of income

decreases by more than 250

An increase in taxes shifts the IS curve

downward and to the left

Government spending cuts shifts the IS curve

downward and to the left

When planned expenditure is greater than actual expenditure, firms

hire more workers and increase production

In the Keynesian-cross model, if taxes are reduced by 100, then planned expenditures.....for any given level of income

increase by more than 100

Using the Keynesian IS-curve, if government purchases increase by ΔG, output will:

increase by more than ΔG

Following the 2017 expansionary fiscal policy by the Trump administration, the real GDP growth... between 2018 and 2019, while the unemployment rate...

increased, decreased

Following the 2017 spending increases by the Trump administration, the real GDP growth... between 2018 and 2019, while the unemployment rate...

increased, decreased

Following the 2017 tax cuts by the Trump administration, the real GDP growth... between 2018 and 2019, while the unemployment rate...

increased, decreased

When firms experience unplanned inventory accumulation, unemployment

increases

When planned expenditure is less than actual expenditure, unemployment

increases

In the Keynesian-cross model with an MPC is greater than 0, if government purchases increase by 250, then the equilibrium level of income

increases by more than 250

Which variable enables actual expenditure to differ from planned expenditure?

inventories

When firms experience unplanned inventory accumulation, they typically

lay off workers and reduce production

The theory of liquidity preference states that, other things being equal, an increase in the real money supply will

lower the interest rate

Actual expenditure is

national income

Planned expenditure is a function of

national income and planned investment, government spending, and taxes

The theory of liquidity preference states that the quantity of real money balances demanded is

negatively related to the interest rate and positively related to income

In the IS-LM model, which variables are endogenous?

output (Y) and interest rate (r)

The theory of liquidity preference states that, other things being equal, a decrease in the real money supply will

raise the interest rate

An increase in the interest rate

reduces planned investment because the interest rate is the cost of borrowing to finance investment projects

An expansionary fiscal policy shifts the AD curve to the ... and a contractionary monetary policy, shifts the AD curve to the ....

right, left

The LM curve is steeper the _____ the interest sensitivity of money demand and the _____ the effect of income on money demand.

smaller; greater

An increase in taxes shifts AD curve

to the left

Government spending cuts shifts the AD curve

to the left

Government spending increases shifts the AD curve

to the right

Tax cuts shifts the AD curve

to the right

Government spending increases shifts the IS curve

upward and to the right

Tax cuts shifts the IS curve

upward and to the right

In the Keynesian cross model, what would follow an unexpected decrease in inventories?

A decrease in the unemployment rate

Why is the aggregate demand curve decreasing?

A rise in aggregate price increases interest rates in the money market, which lowers aggregate investment

In the IS-LM model, what happens to output & interest rates following an increase in taxes?

Both output and interest rate decrease

In the IS-LM model, what happens to output and interest rates following a decrease in the money supply?

Output decreases but interest rate increases

In the IS-LM model, which variables are exogenous?

G, T, M & P

In the Keynesian-cross model, actual expenditures equals

GDP

Which statement is TRUE when the interest rate is high?

Income is high on the IS curve and low on the LM curve

In the IS-LM model, what happens to the IS curve following an increase in taxes?

The IS curve shifts to the left

In the IS-LM model, what happens to the LM curve following a decrease in the money supply?

The LM curve shifts to the left

In the Keynesian-cross model, fiscal policy has a multiplying effect on income because fiscal policy

changes income, which changes consumption, which further changes income


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