Econ Final

In the IS-LM Analysis, the increase in income resulting from a tax cut is ____ the increase in income resulting from an equal rise in government spending.

Usually less than

In the Mundell-Fleming model, the domestic interest rate is determined by the:

world interest rate.

A small open economy with a floating exchange rate is initially at equilibrium A with IS*1, LM*1, equilibrium exchange rate e2, and equilibrium output Y1. If there is an increase in government spending to IS*2, the new equilibrium will be at ____, holding everything else constant

B

One policy response to the US economic slowdown of 2001 was to increase money growth. The policy response can be represented in the IS-LM model by shifting ___ curve to the ____.

LM; Right

An increase in the demand for money, at any given income level and level of interest rates, will, within the IS - LM framework, ____ output and ___ interest rates.

Lower, raise

In a small open economy, if exports equal 20 billion, imports equal 30 billion, and domestic national saving equals 25 billion, then net capital outflow equals?

Negative 10 billion

Based on the graph, if the economy starts from a short-term equilibrium at D, then the long-run equilibrium will be at ____, with a _____ price level.

C; higher

When exports exceed imports, all of the following are true except:

Domestic investment exceeds domestic saving

A decrease in the price level shifts the ____ curve to the right, and the aggregate demand curve ___.

LM, Doesn't shift

A decrease in the price level shifts the ___ curve to the right, and the aggregate demand curve ____.

LM, doesnt shift

If real money balances enter the IS-LM model both through the theory of liquidity preference and the Pigou effect, then a fall in the price level will shift: neither the LM nor the IS curve.

both the LM and the IS curves.

In a small open economy with a floating exchange rate, if the government imposes an import quota, then in the new short-run equilibrium the IS* curve shifts to the right, raising the exchange rate:

but not raising net exports or income

The Pigou effect suggests that falling prices will increase income because real balances influence ______ and will shift the ______ curve.

consumer spending; IS

In the IS - LM model, changes in taxes initially affect planned expenditures through:

consumption

During the financial crisis of 2008-2009, many financial institutions stopped making loans even to creditworthy customers, which could be represented in the IS-LM model as a(n):

contractionary shift in the LM curve.

Based on the graph, starting starting from equilibrium at interest rate r3, income y2, lS1, if there is an increase in government spending that shifts the lS curve to IS2, then in order to keep output constant, the Federal reserve should ____ the money supply, shifting to the ____.

decrease, lm3.

The severity of the Great Depression may be partly explained by an increase in expected

deflation, which raised real interest rates above nominal interest rates

In a small open economy with a floating exchange rate, if the government increases the money supply, then in the new short-run equilibrium, the:

exchange rate falls and net exports increase.

The debt-deflation hypothesis explains the fall in income as a consequence of unexpected deflation transferring wealth ______, and that creditors have a ______ propensity to consume than debtors.

from debtors to creditors; smaller

According to the IS-LM model, when the government increases taxes and government purchases by equal amounts:

income and the interest rate rise, whereas consumption and investment fall.

Suppose the sudden death of a popular president reduces consumer confidence, inducing people to save more. The Fed desires to stabilize demand in the economy. Use this information to answer the following question. The Fed should

increase the money supply to lower the interest rate.

A given increase in taxes shifts the IS curve more to the left the: larger the government spending.

larger the marginal propensity to consume

The money hypothesis suggests that the Great Depression was caused by a: rightward shift in the IS curve.

leftward shift in the LM curve

The intersection of the IS* and LM* curves shows the ______ and the ______ at which both the goods market and the money market are in equilibrium.

level of output; exchange rate

The aggregate demand curve generally slopes downward and to the right because, for any given money supply M, a higher price level P causes a ______ real money supply M / P, which ______ the interest rate and ______ spending

lower; raises; reduces

A change in income in the IS-LM model resulting from a change in the price level is represented by a ______ aggregate demand curve, while a change in income in the IS-LM model for a given price level is represented by a ______ aggregate demand curve.

movement along the; shift in the

Starting from a short-run equilibrium greater than the natural rate of output, as the economy returns to a long-run equilibrium:

output will decrease, but the price level will increase

Based on the graph, starting from equilibrium at interest rate r1 and income y1, a tax cut would generate the new equilibrium combination of interest rate and income:

r2, Y3

A movement along the aggregate demand curve corresponds to a change in income in the IS - LM model _____, while a shift in an aggregate demand curve corresponds to a change in income in the IS-LM model _____.

resulting from a change in the price level; at a given price level

In the IS-LM model, when M remains constant but P rises, in short-run equilibrium, in the usual case the interest rate ___ and output ____.

rises; falls

In the Mundell-Fleming model:

the behavior of the economy depends on whether the exchange-rate system has a floating or fixed exchange rate

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

usually less than

The debt-deflation theory of the Great Depression suggests that an ______ deflation redistributes wealth in such a way as to ______ spending on goods and services.

unexpected; reduce