The IS and LM Curves
A shift in the IS/LM curve could be caused by which of the following?
Increase in autonomous spending causes the IS curve to shift out.
Which of the following could cause a shift in the IS/LM curve?
Increase in autonomous spending causes the IS curve to shift out.
A feature of the investment-savings (IS) curve is best described by which of the following?
The IS curve provides a correlation between the level of real GDP and the real interest rate.
Which statements best describes a feature of the investment-savings (IS) curve?
The IS curve provides a correlation between the level of real GDP and the real interest rate. EXPLANATION The IS curve relates the level of real GDP and the real interest rate.
In the equation C = a + (mpc × Yd), what does "Yd" refer to?
Disposable income
As shown on the LM curve, money demand increases when output rises for which of the following reasons?
Because money serves as a medium of exchange
Money demand increases when output rises for which of the following reasons?
Because money serves as a medium of exchange
Which of the following describes why money demand increases when output rises, as shown on the lM curve?
Because money serves as a medium of exchange
The comparative statics study of the IS-LM model is best described by which of the following statements?
Comparative statics is used to study the effect of exogenous factors in the equilibrium levels of interest rates and output.
Which of the following statements describes the comparative statics study of the IS-LM model?
Comparative statics is used to study the effect of exogenous factors in the equilibrium levels of interest rates and output. EXPLANATION Comparative statics results of the IS-LM model illustrate how changes in exogenous factors influence the equilibrium levels of interest rates and output.
What does "Yd" refer to in the equation C = a + (mpc × Yd)?
Disposable income
The investment-savings (IS) curve is best described by which of the following statements?
The IS curve shows that the level of spending decreases with an increase in the real interest rate.
Which of the following statements best describes the investment-saving (IS) curve?
The IS curve shows that the level of spending decreases with an increase in the real interest rate.
Which of the following statements gives the best description of the investment-savings (IS) curve?
The IS curve shows that the level of spending decreases with an increase in the real interest rate. EXPLANATION The IS curve is downward sloping: as the real interest rate increases, the level of spending decreases. It reflects the fact that in the short run, real GDP equals spending. The horizontal axis is labeled "real GDP".
What is not true of the IS-LM model of an economy?
The IS-LM considers the price level as a variable.
The IS-LM model of an economy can NOT be described by which of the following statements?
The IS-LM considers the price level as a variable. EXPLANATION The IS-LM model takes the price level as fixed.
Which statement does NOT represent the IS-LM model of an economy?
The IS-LM considers the price level as a variable. EXPLANATION The IS-LM model takes the price level as fixed.
In a Keynesian cross diagram, which phrase describes the consumption function line plus planned investment spending?
The aggregate demand function line
The consumption function line plus planned investment spending is best described by which of the following phrases?
The aggregate demand function line
According to a Keynesian cross diagram, the consumption function line plus planned investment spending is best described by which of the following?
The aggregate demand function line EXPLANATION In a Keynesian cross diagram, the aggregate demand function is the consumption function line plus planned investment spending.
What best describes the slope of the LM curve?
Upward sloping
Which of the following best describes the slope of the LM curve?
Upward sloping EXPLANATION The LM curve represents the combinations of the interest rate and income such that money supply and money demand are equal at each point along the curve. The LM curve is upward sloping: higher real GDP is associated with higher interest rates. At each point along the LM curve, money supply equals money demand.