ECON2105 Chapter 18 quiz UGA

If the risk-free rate is 1.5% and the risk premium is 2%, the MP curve is at: 3.5%. 2%. 1.5%. 4%.

3.5%.

Which of the following changes could create a more positive output gap?(i) The U.S. dollar appreciates.(ii) The U.S. dollar depreciates.(iii) Trading partners reduce tariffs on U.S. exports.(iv) Monetary policy actions boost the economy. (iv) only (ii), (iii), and (iv) (i) only (ii) only

(ii), (iii), and (iv)

If government spending rises by $62 billion and GDP rises by $110 billion, then the multiplier in the economy is approximately: 1.12. 0.56. 1.77. 2.77.

1.77.

How do interest rates affect investment in the economy? Higher interest rates increase government expenditure and thus raise investment. Lower interest rates lower the cost of borrowing for firms, and so investment rises. Lower interest rates lower the after-tax profit for firms, and thus investment falls. Higher interest rates lower the cost of borrowing for firms, and so firms save more in banks.

Lower interest rates lower the cost of borrowing for firms, and so investment rises.

Which of the following causes shifts in the IS curve? The real interest rate decreases. Financial shocks occur. Spending shocks occur. The real interest rate increases.

Spending shocks occur.

The IS curve is constructed by: adding consumption and savings at each real interest rate. plotting savings at each real interest rate. adding up consumption and investment and plotting these two expenditure levels to income. adding up the level of aggregate expenditure at each real interest rate.

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

Which of the following cause(s) shifts in the MP curve? spending shocks consumer pessimism changes in monetary policy business optimism

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. government expenditure falls, and this leads to a left shift of the IS curve. government expenditure rises, and this leads to a right shift of the IS curve. investment decreases, and this leads to a left shift in the IS curve.

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 goods and services by consumers. expenditure on capital goods by businesses. planned purchases of stocks and bonds by consumers. use of electricity and water by factories.

expenditure on capital goods by businesses.

The risk premium is the: extra rise in interest rates when the Federal Reserve identifies an output gap. extra interest charged by lenders to account for risk. risk-free rate of interest. federal funds rate.

extra interest charged by lenders to account for risk.

Which of the following cause shifts in the MP curve? spending shocks changes in tax rates changes in tariffs financial shocks

financial shocks

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: consumption. government expenditure. planned investment. exports.

government expenditure.

A good proxy for the risk-free interest rate is the interest rate on a: loan to a member of the public who has a good credit rating. corporate bond. junk bond. loan to the U.S. government.

loan to the U.S. government.

The higher the opportunity cost of consumption, the: higher the investment in the economy. more to the right the economy is along the IS curve. lower the aggregate expenditures. higher the consumption.

lower the aggregate expenditures.

The intersection of the IS curve and the MP curve determine: macroeconomic equilibrium. the largest output gap. the federal funds rate. the risk-free interest rate in the economy.

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. real GDP falls by $55 billion, and the IS curve shifts to the left. real GDP falls by $11 billion, but the IS curve does not shift. real GDP rises by $27.5 billion, and the IS curve shifts to the right.

real GDP rises by $68.75 billion, and the IS curve shifts to the right.