Macro Final

If MPC = 0.75 (and there are no income taxes) when G increases by 100, then the IS curve for any given interest rate shifts to the right by: - 100. - 200. - 300. - 400.

400.

If expected inflation equals 3 percent and monetary policymakers push the nominal interest rate to 1 percent, the real interest rate equals ______ percent. - 4 - 1 - 0 - -2

-2

In the IS-LM model, changes in taxes initially affect planned expenditures through: - consumption. - investment. - government spending. - the interest rate.

consumption

An increase in consumer saving for any given level of income will shift the: - LM curve upward and to the left. - LM curve downward and to the right. - IS curve downward and to the left. - IS curve upward and to the right.

IS curve downward and to the left.

The U.S. recession of 2001 can be explained in part by a declining stock market and terrorist attacks. Both of these shocks can be represented in the IS-LM model by shifting the ______ curve to the ______. - LM; right - LM; left - IS; right - IS; left

IS; left

One policy response to the U.S. economic slowdown of 2001 were tax cuts. This policy response can be represented in the IS-LM model by shifting the ______ curve to the ______. - LM; right - LM; left - IS; right - IS; left

IS; right

A tax cut shifts the ______ to the right, and the aggregate demand curve ______. - IS; shifts to the right - IS; does not shift - LM: shifts to the right - LM; does not shift

IS; shifts to the right

Analysis of the short and long runs indicates that the ______ assumptions are most appropriate in ______. - classical; both the short and long runs - Keynesian; both the short and long runs - classical; the short run whereas the Keynesian assumptions are most appropriate in the long run - Keynesian; the short run whereas the classical assumptions are most appropriate in the long run

Keynesian; the short run whereas the classical assumptions are most appropriate in the long run

An increase in the money supply shifts the ______ curve to the right, and the aggregate demand curve ______. - IS; shifts to the right - IS; does not shift - LM: shifts to the right - LM; does not shift

LM: shifts to the right

A decrease in the price level shifts the ______ curve to the right, and the aggregate demand curve ______. - IS; shifts to the right - IS; does not shift - LM: shifts to the right -LM; does not shift

LM; does not shift

If the money supply increases, then in the IS-LM analysis the ______ curve shifts to the ______. - LM; left - LM; right - IS; left - IS; right

LM; right

One policy response to the U.S. economic slowdown of 2001 was to increase money growth. This policy response can be represented in the IS-LM model by shifting the ______ curve to the ______. - LM; right - LM; left - IS; right - IS; left

LM; right

An unexpected deflation can change demand by redistributing wealth from: - creditors to debtors, thus raising consumption. - creditors to debtors, thus lowering consumption. - debtors to creditors, thus lowering consumption. - debtors to creditors, thus raising consumption.

debtors to creditors, thus lowering consumption.

According to the IS-LM model, if Congress raises taxes but the Fed wants to hold the interest rate constant, then the Fed must ______ the money supply. - increase -decrease - first increase and then decrease - first decrease and then increase

decrease

A shift in the aggregate demand curve, starting from long-run equilibrium, which increases output in the short run, will ______ in the long run, as compared to a short-run equilibrium. - increase both output and the price level - decrease output but increase prices - increase output but decrease the price level - decrease both output and the price level

decrease output but increase prices

If the short-run IS-LM equilibrium occurs at a level of income below the natural level of output, then in the long run the price level will ______, shifting the ______ curve to the right and returning output to the natural level. - increase; IS - decrease; IS - increase; LM - decrease; LM

decrease; LM

In the IS-LM model, a decrease in government purchases leads to a(n) ______ in planned expenditures, a(n) ______ in total income, a(n) ______ in money demand, and a(n) ______ in the equilibrium interest rate. - decrease; decrease; decrease; decrease - increases; increase; increases; increase - decrease; decrease; increase; increase - increase; increase; decrease; decrease

decrease; decrease; decrease; decrease

In the IS-LM model when taxation increases, in short-run equilibrium, in the usual case, the interest rate ______ and output ______. - rises; falls - rises; rises - falls; rises - falls; falls

falls; falls

All of the following may have contributed to the financial crisis and economic downturn of 2008-09 except: - high inflation. - low interest rates. - stock market volatility. - falling house prices.

high inflation.

According to the IS-LM model, when the government increases taxes and government purchases by equal amounts: - income, the interest rate, consumption, and investment are unchanged. - income and the interest rate rise, whereas consumption and investment fall. - income and the interest rate fall, whereas consumption and interest rise. - income, the interest rate, consumption, and investment all rise.

income and the interest rate rise, whereas consumption and investment fall.

According to the IS-LM model, if Congress raises taxes but the Fed wants to hold income constant, then the Fed must ______ the money supply. - increase - decrease - first increase and then decrease - first decrease and then increase

increase

In the IS-LM model, a decrease in the interest rate would be the result of a(n): - increase in the money supply. - increase in government purchases. - decrease in taxes. - increase in money demand.

increase in the money supply.

An increase in investment demand for any given level of income and interest rates—due, for example, to more optimistic "animal spirits"—will, within the IS-LM framework, ______ output and ______ interest rates. - increase; lower - increase; raise - lower; lower - lower; raise

increase; raise

A liquidity trap occurs when: - banks have too much currency and close their doors to new customers. - the central bank mistakenly prints too much money, generating hyperinflation. - interest rates fall so low that monetary policy is no longer effective. - dams and locks are built to prevent flooding.

interest rates fall so low that monetary policy is no longer effective.

The reason that the income response to a fiscal expansion is generally less in the IS-LM model than it is in the Keynesian-cross model is that the Keynesian-cross model assumes that: - investment is not affected by the interest rate whereas in the IS-LM model fiscal expansion raises the interest rate and crowds out investment. - investment is not affected by the interest rate whereas in the IS-LM model fiscal expansion lowers the interest rate and crowds out investment. - investment is autonomous whereas in the IS-LM model fiscal expansion encourages higher investment, which raises the interest rate. - the price level is fixed whereas in the IS-LM model it is allowed to vary.

investment is not affected by the interest rate whereas in the IS-LM model fiscal expansion raises the interest rate and crowds out investment.

If taxes are raised, but the Fed prevents income from falling by raising the money supply, then: - both consumption and investment remain unchanged. - consumption rises but investment falls. - investment rises but consumption falls. - both consumption and investment fall.

investment rises but consumption falls.

In the IS-LM model under the usual conditions in a closed economy, an increase in government spending increases the interest rate and crowds out: - prices. - investment. - the money supply. - taxes.

investment.

A given increase in taxes shifts the IS curve more to the left the: - larger the marginal propensity to consume. - smaller the marginal propensity to consume. - larger the government spending. - smaller the government spending.

larger the marginal propensity to consume.

The increase in income in response to a fiscal expansion in the IS-LM model is: - always less than in the Keynesian-cross model. - less than in the Keynesian-cross model unless the LM curve is vertical. - less than in the Keynesian-cross model unless the LM curve is horizontal. - less than in the Keynesian-cross model unless the IS curve is vertical.

less than in the Keynesian-cross model unless the LM curve is horizontal.

If Congress passed a tax increase at the request of the president to reduce the budget deficit, but the Fed held the money supply constant, then the two policies together would generally lead to ______ income and a ______ interest rate. - lower; lower - lower; higher - no change in; lower - no change in; higher

lower; lower

A movement along an aggregate demand curve corresponds to a change in income in the IS-LM model ______, while a shift in an aggregate demand curve corresponds to a change in income in the IS-LM model ______. - resulting from a change in monetary policy; resulting from a change in fiscal policy - resulting from a change in fiscal policy; resulting from a change in monetary policy - at a given price level; resulting from a change in the price level - resulting from a change in the price level; at a given price level

resulting from a change in the price level; at a given price level

In the IS-LM model when M remains constant but P rises, in short-run equilibrium, in the usual case, the interest rate ______ and output ______. - rises; falls - rises; rises - falls; rises - falls; falls

rises; falls

In the IS-LM model when government spending rises, in short-run equilibrium, in the usual case, the interest rate ______ and output ______. - rises; falls - rises; rises - falls; rises - falls; falls

rises; rises

When bond traders for the Federal Reserve seek to increase interest rates, they ______ bonds, which shifts the ______ curve to the left. - buy; IS - buy; LM - sell; IS - sell; LM

sell; LM

The interaction of the IS curve and the LM curve together determine: - the price level and the inflation rate. - the interest rate and the price level. - investment and the money supply. - the interest rate and the level of output.

the interest rate and the level of output.

An economic change that does not shift the aggregate demand curve is a change in: - the money supply. - the investment function. - the price level. - taxes.

the price level.