2024 summer format 2 Flashcards
In the Keynesian Cross model, if planned investment increases, what is the immediate effect on equilibrium output?
a. It decreases equilibrium output and raises the interest rate.
b. It decreases equilibrium output and lowers the interest rate.
c. It increases equilibrium output and raises the interest rate.
d. It increases equilibrium output and lowers the interest rate.
d. It increases equilibrium output and lowers the interest rate.
In the IS/LM model, if the central bank conducts an open market purchase of government bonds, what happens to the LM curve?
a. It shifts to the left, raising interest rates.
b. It shifts to the right, lowering interest rates.
c. It remains unchanged, but interest rates rise.
d. It remains unchanged, but output increases.
b. It shifts to the right, lowering interest rates.
According to the Mundell-Fleming model under perfect capital mobility, a monetary expansion will:
a. Increase the interest rate and appreciate the currency.
b. Decrease the interest rate and depreciate the currency.
c. Have no effect on the interest rate but increase output.
d. Decrease the interest rate and have no effect on the currency.
b. Decrease the interest rate and depreciate the currency.
The Aggregate Supply (AS) curve in the long run is:
a. Upward sloping due to price and wage stickiness.
b. Horizontal due to the flexibility of wages and prices.
c. Vertical because output is determined by factors of production.
d. Downward sloping due to diminishing returns.
c. Vertical because output is determined by factors of production.
In the context of the AD/AS model, a supply-side policy aimed at increasing productivity would most likely:
a. Shift the Aggregate Demand (AD) curve to the right.
b. Shift the Aggregate Supply (AS) curve to the right.
c. Increase inflation and reduce output.
d. Shift the AD curve to the left.
b. Shift the Aggregate Supply (AS) curve to the right.
In the Keynesian model, if there is an increase in government spending while the central bank maintains a constant money supply, what is the likely short-run effect on interest rates?
a. Interest rates will decrease due to increased money supply.
b. Interest rates will increase due to higher aggregate demand.
c. Interest rates will remain unchanged as the money supply is constant.
d. Interest rates will initially decrease but then increase as output rises.
b. Interest rates will increase due to higher aggregate demand.
In the IS/LM/BP model with a fixed exchange rate, an increase in government spending will likely:
a. Lead to an increase in the exchange rate and a balance of payments surplus.
b. Lead to an increase in output and a balance of payments deficit.
c. Lead to a decrease in output and a balance of payments surplus.
d. Have no effect on the balance of payments but increase output.
b. Lead to an increase in output and a balance of payments deficit.
The IS curve shows the relationship between:
a. Aggregate output and the interest rate where the money market is in equilibrium.
b. Aggregate output and the interest rate where the goods market is in equilibrium.
c. The price level and aggregate output where the goods market is in equilibrium.
d. The price level and interest rate where the money market is in equilibrium.
b. Aggregate output and the interest rate where the goods market is in equilibrium.
In the AD/AS model, a decrease in the price level typically results in:
a. A decrease in the quantity of goods and services demanded.
b. An increase in the quantity of goods and services demanded.
c. A decrease in aggregate supply.
d. An increase in aggregate supply.
b. An increase in the quantity of goods and services demanded.
Which of the following statements is true regarding the multiplier effect?
a. The multiplier effect is larger when the marginal propensity to save (MPS) is higher.
b. The size of the multiplier is unaffected by changes in the marginal propensity to consume (MPC).
c. The multiplier effect amplifies the impact of changes in autonomous spending on national income.
d. The multiplier effect diminishes as the economy approaches full employment.
c. The multiplier effect amplifies the impact of changes in autonomous spending on national income.
In the context of the Keynesian income determination model, what happens if actual output is greater than planned aggregate expenditure?
a. Unplanned inventory investment will decrease, leading to a rise in output.
b. Unplanned inventory investment will increase, leading to a decrease in output.
c. Unplanned inventory investment will decrease, leading to a decrease in output.
d. Unplanned inventory investment will increase, leading to a rise in output.
b. Unplanned inventory investment will increase, leading to a decrease in output.
Under a flexible exchange rate system, an increase in interest rates will:
a. Lead to a depreciation of the domestic currency.
b. Lead to an appreciation of the domestic currency.
c. Have no effect on the domestic currency.
d. Lead to a decrease in output.
b. Lead to an appreciation of the domestic currency.
Which of the following is not an automatic stabilizer in the economy?
a. Progressive income taxes.
b. Unemployment benefits.
c. Government spending on infrastructure projects.
d. Social security payments.
c. Government spending on infrastructure projects.
In the long run, the Aggregate Supply (AS) curve is vertical because:
a. Prices and wages are sticky.
b. The economy is at full employment and output is determined by factors of production.
c. There is a direct relationship between output and the price level.
d. The economy adjusts quickly to changes in aggregate demand.
b. The economy is at full employment and output is determined by factors of production.
In the IS/LM model, an increase in the money supply will:
a. Shift the LM curve to the left, increasing interest rates.
b. Shift the LM curve to the right, decreasing interest rates.
c. Shift the IS curve to the right, increasing output.
d. Shift the IS curve to the left, decreasing output.
b. Shift the LM curve to the right, decreasing interest rates.
The Pigou effect suggests that an increase in real wealth due to a fall in the price level will:
a. Decrease consumption and aggregate demand.
b. Increase consumption and aggregate demand.
c. Have no effect on consumption but increase investment.
d. Increase the money supply and decrease interest rates.
b. Increase consumption and aggregate demand.
In the context of the circular flow of income, an increase in taxes without a corresponding increase in government spending will likely:
a. Increase aggregate demand and boost economic activity.
b. Decrease aggregate demand and reduce economic activity.
c. Increase aggregate supply and economic activity.
d. Have no effect on aggregate demand but reduce economic activity.
b. Decrease aggregate demand and reduce economic activity.
In the short run, a decrease in aggregate demand will likely cause:
a. An increase in both output and prices.
b. A decrease in both output and prices.
c. An increase in output with unchanged prices.
d. A decrease in prices with unchanged output.
b. A decrease in both output and prices.
The liquidity preference theory suggests that changes in the money supply affect:
a. Only the investment decisions of firms.
b. Only the level of aggregate demand.
c. Both interest rates and the level of aggregate demand.
d. The balance of payments but not interest rates.
c. Both interest rates and the level of aggregate demand.
Under perfect capital mobility, the BP (Balance of Payments) curve in the IS/LM/BP model is:
a. Downward sloping, reflecting a trade-off between output and interest rates.
b. Horizontal, reflecting the perfect substitutability of domestic and foreign assets.
c. Vertical, reflecting the fixed exchange rate system.
d. Upward sloping, indicating increasing output leads to a higher balance of payments surplus.
b. Horizontal, reflecting the perfect substitutability of domestic and foreign assets.
Which of the following is NOT a characteristic of the IS/LM model?
a. It represents the interaction between the goods market and the money market.
b. It assumes that prices are flexible in the short run.
c. It is primarily used to analyze short-run fluctuations in output and interest rates.
d. It is used to assess the effects of monetary and fiscal policies in the short run.
b. It assumes that prices are flexible in the short run.
In the context of the Keynesian income determination model, what happens when autonomous consumption increases?
a. The IS curve shifts to the left.
b. The IS curve shifts to the right.
c. The LM curve shifts to the right.
d. The LM curve shifts to the left.
b. The IS curve shifts to the right.
Which of the following describes the primary focus of the Mundell-Fleming model?
a. The interaction between aggregate demand and aggregate supply in an open economy.
b. The relationship between the money supply and interest rates in a closed economy.
c. The impact of fiscal and monetary policies in a small open economy with perfect capital mobility.
d. The long-term effects of wage and price adjustments in a closed economy.
c. The impact of fiscal and monetary policies in a small open economy with perfect capital mobility.
In the IS/LM/BP model, an increase in domestic interest rates under a flexible exchange rate system will:
a. Decrease capital inflows and lead to a currency depreciation.
b. Increase capital inflows and lead to a currency appreciation.
c. Have no effect on capital flows or the exchange rate.
d. Decrease aggregate demand due to reduced investment.
b. Increase capital inflows and lead to a currency appreciation.
