ECON 302 Exam 2 Multiple Choice Question

Changes in monetary policy shift the:

LM curve

One policy response to the US 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

Two economies are identical except that the level of capital per worker is higher in Highland than in Lowland. The production functions in both economies exhibit diminishing marginal product of capital. An extra unit of capital per worker increases output per worker

More in Lowland

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

changes income, which changes consumption, which further changes income

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

decrease

Most economists believe that prices are:

flexible in the long run but many are sticky in the short run.

According to the Solow growth model, high population growth rates:

force the capital stock to be spread thinly, thereby reducing living standards

The IS curve provides combinations of interest rates and income that satisfy equilibrium in the market for _______, and the LM curve provides combinations of interest rates and income that satisfy equilibrium in the market for ____________

goods and services; real money balances

Most economists believe:

in view of what economists now know about monetary and fiscal policy and in view of institutional changes, a repeat of the Great Depression is unlikely

An explanation for the slope of the LM curve is that as

income rises, money demand rises, and a higher interest rate is required

According to to IS-LM model, if Congress raises taxes but the Fed wants to hold income constant, then the Fed must _______ the money supply

increase

Over the business cycle, investment spending ______ consumption spending.

is more volatile than

The spending hypothesis suggests that the Great Depression was caused by a:

leftward shift in the IS curve

The money hypothesis suggests that the Great Depression was caused by a

leftward shift in the LM curve

In the IS-LM analysis, the increase in income resulting from a tax cut is usually ________ the increase in income resulting from an equal rise in government spending

less than

If the short-run aggregate supply curve is horizontal, then changes in aggregate demand affect:

level of output but not prices

Countries with low-levels of economic freedom tend to have:

lower per-capita incomes

In the Keynesian-cross model, actual expenditures differ from planned expenditures by the amount of

unplanned inventory investment

Leading economic indicators are:

variables that tend to fluctuate in advance of the overall economy

According to the Solow model, persistently rising living standards can only be explained by:

technological progress

All of the following events are consistent with the spending hypothesis as contributing to the Great Depression except:

the 25-percent reduction in the money supply between 1929 and 1933

If a war destroys a large portion of a country's capital stock but the saving rate is unchanged, the Solow model predicts that output will grow and that the new steady state will approach:

the same level of output per person as before

Conditional convergence occurs when economies converge to

their own, individual steady states

According to the Kremerian model, large populations improve living standards because:

there are more people who can make discoveries and contribute to innovation

The Malthusian model that predicts mankind will remain in poverty forever:

underestimated the possibility for technological progress

A tax cut shifts the ___ to the right, and the aggregate demand curve _______

IS; shifts to the right

The US 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 ____

IS; left

Assume two economies are identical in every way except that one has a higher saving rate. According to the Solow growth model, in the steady state the country with the higher saving rate will have ______ level of output per person and ______ rate of growth of output per worker as/than the country with the lower saving rate

a higher; the same

The equilibrium condition in the Keynesian-cross analysis in a closed economy is

actual expenditure equals planned expenditure

Which of the following is an explanation for why foreign aid has largely failed to improve standards of living in poor countries?

all of the above

The theory of liquidity preference implies that

as the interest rate rises, the demand for real balances will fall.

The IS and LM curves together generally determine

both income and the interest rate

In the basic endogenous growth model, income can grow forever- even without exogenous technological progress - because:

capital does not exhibit diminishing returns

In the Solow growth model, if investment exceeds depreciation, the capital stock will ____ and output will _____ until the steady state is attained

increase; increase

Empirical evidence supports the theory that free trade:

increases economic growth

____________ causes the capital stock to rise, while ________ causes the capital stock to fall

investment; depreciation

Assume two economies are identical in every way except that one has a higher population growth rate. According to the Solow growth model, in the steady state the country with the higher population growth rate will have a ______ level of output per person and ______ rate of growth of output per worker as/than the country with the lower population growth rate.

lower; the same

The IS curve polots the relationships between the interest rate and ______ that arises in the market for _________

national income; goods nad services

The aggregate demand curve is the _____ relationship between the quantity of output demanded and the _____

negative; price level

Okun's law is the ______ relationship between real GDP and the ______.

negative; unemployment rate

Schumpeter's thesis of "creative destruction" is an explanation of economic progress resulting from:

new product producers driving incumbent producers out of business

The IS-LM model is generally used

only in the short run

A key difference between planners and searchers is that

planners are rarely held accountable for their failures while searchers are held accountable by profits and losses

Across the world, which of the following is lower today than at any point in history?

poverty rates

If the long-run aggregate supply curve is vertical, then changes in aggregate demand affect:

prices but not level of output

A short-run aggregate supply curve shows fixed ________ and a long-run aggregate supply curve shows fixed _______

prices; output

Stabilization policy refers to policy actions aimed at:

reducing the severity of short-run economic fluctuations

Stagflation occurs when prices _________ and output ________

rise; falls

The type of legal system and the level of corruption in a country have been found to be:

significant determinants of the rate of economic growth in a country

Open borders and immigration:

would decrease global poverty as people from poor countries migrate to rich countries where they are able to earn significantly higher wages