Macro Chapter 11
In the Keynesian-cross model, actual expenditures equal: A) GDP. B) the money supply. C) the supply of real balances. D) unplanned inventory investment.
A
The simple investment function shows that investment ______ as ______ increases. A) decreases; the interest rate B) increases; the interest rate C) decreases; government spending D) increases; government spending
A
In the Keynesian-cross model, actual expenditures differ from planned expenditures by the amount of: A) liquidity preference. B) the government-purchases multiplier. C) unplanned inventory investment. D) real money balances.
C
The Keynesian-cross analysis assumes planned investment: A) is fixed and so does the IS analysis. B) depends on the interest rate and so does the IS analysis. C) is fixed, whereas the IS analysis assumes it depends on the interest rate. D) depends on expenditure and so does the IS analysis.
C
The LM curve shows combinations of ______ that are consistent with equilibrium in the market for real money balances. A) inflation and unemployment B) the price level and real output C) the interest rate and the level of income D) the interest rate and real money balances
C
An explanation for the slope of the IS curve is that as the interest rate increases, the quantity of investment ______, and this shifts the expenditure function ______, thereby decreasing income. A) increases; downward B) increases; upward C) decreases; upward D) decreases; downward
D
The LM curve generally determines: A) income. B) the interest rate. C) both income and the interest rate. D) neither income nor the interest rate.
D
According to the theory of liquidity preference, if the demand for real money balances exceeds the supply of real money balances, individuals will: A) sell interest-earning assets in order to obtain non-interest-bearing money. B) purchase interest-earning assets in order to reduce holdings of non-interest-bearing money. C) purchase fewer goods and services. D) be content with their portfolios.
A
At a given interest rate, an increase in the nominal money supply ______ the level of income that is consistent with equilibrium in the market for real balances. A) raises B) lowers C) does not change D) may either raise or lower
A
In the Keynesian-cross model, a decrease in the interest rate ______ planned investment spending and ______ the equilibrium level of income. A) increases; increases B) increases; decreases C) decreases; decreases D) decreases; increases
A
The theory of liquidity preference implies that: A) as the interest rate rises, the demand for real balances will fall. B) as the interest rate rises, the demand for real balances will rise. C) the interest rate will have no effect on the demand for real balances. D) as the interest rate rises, income will rise.
A
(Exhibit: Keynesian Cross) In this graph, if firms are producing at level inventories will ______, inducing firms to ______ production. A) rise; increase B) rise; decrease C) fall; increase D) fall; decrease
B
After the Kennedy tax cut in 1964, real GDP: A) fell and unemployment rose. B) rose and unemployment fell. C) and unemployment both rose. D) and unemployment both fell.
B
Assume that the money demand function is (M/P)d = 2,200 - 200r, where r is the interest rate in percent. The money supply M is 2,000 and the price level P is 2. If the price level is fixed and the supply of money is raised to 2,800, then the equilibrium interest rate will: A) drop by 4 percent. B) drop by 2 percent. C) drop by 1 percent. D) remain unchanged.
B
Based on the Keynesian model, one reason to support government spending increases over tax cuts as measures to increase output is that: A) government spending increases the MPC more than tax cuts. B) the government-spending multiplier is larger than the tax multiplier. C) government-spending increases do not lead to unplanned changes in inventories, but tax cuts do. D) increases in government spending increase planned spending, but tax cuts reduce planned spending.
B
In the Keynesian-cross analysis, assume that the analysis of taxes is changed so that taxes, T, are made a function of income, as in T = T + tY, where T and t are parameters of the tax code and t is positive but less than 1. As compared to a case where t is zero, the multiplier for government purchases in this case will: A) not change. B) be smaller. C) be bigger. D) be equal to 1.
B
In the liquidity pre ference model, what adjusts to move the money market to equilibrium following a change in the money supply? A) planned spending B) the interest rate C) production D) the price level
B
An explanation for the slope of the LM curve is that as: A) the interest rate increases, income becomes higher. B) the interest rate increases, income becomes lower. C) income rises, money demand rises, and a higher interest rate is required. D) income rises, money demand rises, and a lower interest rate is required.
C
The equilibrium condition in the A) Keynesiancross analysis in a closed economy is: income equals consumption plus investment plus government spending. B) planned expenditure equals consumption plus planned investment plus government spending. C) actual expenditure equals planned expenditure. D) actual saving equals actual investment.
C
The intersection of the IS and LM curve determines the values of: A) r, Y, and P, given G, T, and M. B) r, Y, and M, given G, T, and P. C) r and Y, given G, T, M, and P. D) p and Y, given G, T, and M.
C
According to the theory of liquidity preference, the supply of real money balances: A) decreases as the interest rate increases. B) increases as the interest rate increases. C) increases as income increases. D) is fixed.
D
Along any given IS curve: A) tax rates are fixed, but government spending varies. B) government spending is fixed, but tax rates vary. C) both government spending and tax rates vary. D) both government spending and tax rates are fixed.
D
