EC 309 ch 12 & 13 Midterm 3
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
