CHAPTER 18 ECON QUIZ

You are driving to see your grandparents when you get caught in traffic caused by construction on the interstate. The construction is an example of:

government expenditure

Which of the following cause(s) shifts in the MP curve?

changes in monetary policy

If the U.S. government lowers personal income tax rates:

disposable income increases, and this leads to an increase in consumption and a right shift of the IS curve

Planned investment is the:

expenditure on capital goods by businesses

the risk premium is the

extra interest charged by lenders to account for risk

Which of the following cause shifts in the MP curve?

financial shocks

If government spending rises by $62 billion and GDP rises by $110 billion, then the multiplier in the economy is approximately:

1.77 (divide 110 by 62)

If the risk-free rate is 1.5% and the risk premium is 2%, the MP curve is at:

3.5% (add)

Which of the following shows the correct effect on the IS curve of a decrease in personal income tax rates?

a movement from point C to D

The IS curve is constructed by:

adding up the level of aggregate expenditure at each real interest rate

A good proxy for the risk-free interest rate is the interest rate on a:

loan to the us govt

How do interest rates affect investment in the economy?

lower interest rates lower the cost of borrowing for firms, and so investments rise

The intersection of the IS curve and the MP curve determine:

macroeconomic equilibrium

If government expenditure rises by $27.5 billion and the multiplier in the economy is 2.5, then:

real GDP rises by 68.75 billion, and the IS curve shifts to the right (multiply)

Which of the following causes shifts in the IS curve?

spending shocks occur

If actual GDP is greater than potential GDP:

the economy can experience inflation

The higher the opportunity cost of consumption, the:

the lower the aggregate expenditures

Which of the following changes could create a more positive output gap?

the us dollar depreciates, trading partners reduce tariffs on us exports, monetary policy actions boosts the economy