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macroeconomics > Chapter 11 > Flashcards

Chapter 11 Flashcards

1
Q

The interaction of the IS curve and the LM curve together determine:

the price level and the inflation rate.
the interest rate and the price level.
investment and the money supply.
the interest rate and the level of output.

A

the interest rate and the level of output.

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2
Q

In the IS-LM model when government spending rises, in short-run equilibrium, in the usual case, the
interest rate ______ and output ______.

rises; falls
rises; rises
falls; rises
falls; falls

A

rises; rises

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3
Q

In the IS-LM model, a decrease in government purchases leads to a(n) ______ in planned expenditures,
a(n) ______ in total income, a(n) ______ in money demand, and a(n) ______ in the equilibrium interest
rate.

decrease; decrease; decrease; decrease
increases; increase; increases; increase
decrease; decrease; increase; increase
increase; increase; decrease; decrease

A

decrease; decrease; decrease; decrease

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4
Q

In the IS-LM model, the impact of an increase in government purchases in the goods market has
ramifications in the money market, because the increase in income causes a(n) ______ in money ______.

increase; supply
increase; demand
decrease; supply
decrease; demand

A

increase; demand

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5
Q

In the IS-LM model when taxation increases, in short-run equilibrium, in the usual case, the interest rate
______ and output ______.

rises; falls
rises; rises
falls; rises
falls; falls

A

falls; falls

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6
Q

If the LM curve is vertical and government spending rises by G, in the IS-LM analysis, then equilibrium
income rises by:

G/(1 – MPC).
more than zero but less than G/(1 – MPC).
G.
zero.

A

zero.

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7
Q

If MPC = 0.75 (and there are no income taxes) when G increases by 100, then the IS curve for any given
interest rate shifts to the right by:

100.
200.
300.
400.

A

400.

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8
Q

If MPC = 0.75 (and there are no income taxes but only lump-sum taxes) when T decreases by 100, then the
IS curve for any given interest rate shifts to the right by:

100.
200.
300.
400.

A

300.

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9
Q

In the IS-LM model under the usual conditions in a closed economy, an increase in government spending
increases the interest rate and crowds out:

prices.
investment.
the money supply.
taxes.

A

investment.

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10
Q

The increase in income in response to a fiscal expansion in the IS-LM model is:

always less than in the Keynesian-cross model.
less than in the Keynesian-cross model unless the LM curve is vertical.
less than in the Keynesian-cross model unless the LM curve is horizontal.
less than in the Keynesian-cross model unless the IS curve is vertical.

A

less than in the Keynesian-cross model unless the LM curve is horizontal.

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11
Q

Using the IS-LM analysis, if the LM curve is not horizontal, the multiplier for an increase in government
spending is ______ for an increase in government purchases using the Keynesian-cross analysis.

larger than the multiplier
the same as the multiplier
smaller than the multiplier
sometimes larger and sometimes smaller than the multiplier

A

smaller than the multiplier

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12
Q

The reason that the income response to a fiscal expansion is generally less in the IS-LM model than it is in
the Keynesian-cross model is that the Keynesian-cross model assumes that:

investment is not affected by the interest rate whereas in the IS-LM model fiscal expansion
raises the interest rate and crowds out investment.

investment is not affected by the interest rate whereas in the IS-LM model fiscal expansion
lowers the interest rate and crowds out investment.

investment is autonomous whereas in the IS-LM model fiscal expansion encourages higher
investment, which raises the interest rate.

the price level is fixed whereas in the IS-LM model it is allowed to vary.

A

investment is not affected by the interest rate whereas in the IS-LM model fiscal expansion
raises the interest rate and crowds out investment.

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13
Q

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

consumption.
investment.
government spending.
the interest rate.

A

consumption.

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14
Q

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
greater than
equal to
sometimes less and sometimes greater than

A

less than

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15
Q

If the money supply increases, then in the IS-LM analysis the ______ curve shifts to the ______.

LM; left
LM; right
IS; left
IS; right

A

LM; right

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16
Q

In the IS-LM model when M/P rises, in short-run equilibrium, in the usual case, the interest rate ______ and
output ______.

rises; falls
rises; rises
falls; rises
falls; falls

A

falls; rises

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17
Q

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

rises; falls
rises; rises
falls; rises
falls; falls

A

falls; rises

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18
Q

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
rises; rises
falls; rises
falls; falls

A

rises; falls

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19
Q

If the demand for real money balances does not depend on the interest rate, then the LM curve:

slopes up to the right.
slopes down to the right.
is horizontal.
is vertical.

A

is vertical.

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20
Q

In the IS-LM model when the Federal Reserve decreases the money supply, people ______ bonds and the
interest rate ______, leading to a(n) ______ in investment and income.

buy; rises; increase
sell; falls; decrease
sell; rises; decrease
buy; rises; decrease

A

sell; rises; decrease

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21
Q

The monetary transmission mechanism works through the effects of changes in the money supply on:

the budget deficit.
investment.
government expenditures.
taxation.

A

investment.

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22
Q

The monetary transmission mechanism in the IS-LM model is a process whereby an increase in the money
supply increases the demand for goods and services:

directly.

by lowering the interest rate so that investment spending increases.

by raising the interest rate so that investment spending increases.

by increasing government spending on goods and services.

A

by lowering the interest rate so that investment spending increases.

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23
Q

If Congress passed a tax increase at the request of the president to reduce the budget deficit, but the Fed
held the money supply constant, then the two policies together would generally lead to ______ income and
a ______ interest rate.

lower; lower
lower; higher
no change in; lower
no change in; higher

A

lower; lower

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24
Q

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.

increase
decrease
first increase and then decrease
first decrease and then increase

A

decrease

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25
Q

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

increase
decrease
first increase and then decrease
first decrease and then increase

A

increase

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26
Q

If taxes are raised, but the Fed prevents income from falling by raising the money supply, then:

both consumption and investment remain unchanged.
consumption rises but investment falls.
investment rises but consumption falls.
both consumption and investment fall.

A

investment rises but consumption falls.

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27
Q

According to the macroeconometric model developed by Data Resources Incorporated, the response of
GDP four quarters after an increase in government spending, with the nominal interest rate held constant,
will be ______ the response of GDP to a similar change with the money supply held constant.

less than half as great as

approximately equal to

more than two times as great as

more than three times as great as

A

more than three times as great as

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28
Q

According to the macroeconometric model developed by Data Resources Incorporated, if taxes are
increased by $100 billion, but the money supply is held constant, then GDP will fall by about:

zero.
$25 billion.
$75 billion.
$100 billion.

A

$25 billion.

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29
Q

An increase in investment demand for any given level of income and interest rates—due, for example, to
more optimistic “animal spirits”—will, within the IS-LM framework, ______ output and ______ interest rates.

increase; lower
increase; raise
lower; lower
lower; raise

A

increase; raise

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30
Q

An increase in consumer saving for any given level of income will shift the:

LM curve upward and to the left.
LM curve downward and to the right.
IS curve downward and to the left.
IS curve upward and to the right.

A

IS curve downward and to the left.

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31
Q

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.

increase; lower
increase; raise
lower; lower.
lower; raise

A

lower; raise

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32
Q

In the IS-LM model, a decrease in the interest rate would be the result of a(n):

increase in the money supply.
increase in government purchases.
decrease in taxes.

increase in money demand.

A

increase in the money supply.

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33
Q

In the IS-LM model, a decrease in output would be the result of a(n):

decrease in taxes.
increase in the money supply.
increase in money demand.
increase in government purchases.

A

increase in money demand.

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34
Q

The U.S. 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 ______.

LM; right
LM; left
IS; right
IS; left

A

IS; left

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35
Q

One policy response to the U.S. economic slowdown of 2001 were tax cuts. This policy response can be
represented in the IS-LM model by shifting the ______ curve to the ______.

LM; right
LM; left
IS; right
IS; left

A

LM; right

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36
Q

When bond traders for the Federal Reserve seek to increase interest rates, they ______ bonds, which
shifts the ______ curve to the left.

buy; IS
buy; LM
sell; IS

sell; LM

A

sell; LM

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37
Q

When bond traders for the Federal Reserve seek to decrease interest rates, they ______ bonds, which
shifts the ______ curve to the right.

buy; IS
buy; LM
sell; IS
sell; LM

A

buy; LM

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38
Q

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
higher; lowers; increases
lower; lowers; increases
higher; raises; reduces

A

lower; raises; reduces

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39
Q

An economic change that does not shift the aggregate demand curve is a change in:

the money supply.
the investment function.
the price level.
taxes.

A

the price level.

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40
Q

A change in income in the IS-LM model for a fixed price level:

represents a shift in the aggregate demand curve.

represents a movement along the aggregate demand curve.

has the same effect on the aggregate demand curve as a change in income in the IS-LM model

resulting from a change in the price level.

does not represent a change in the aggregate demand curve.

A

represents a shift in the aggregate demand curve.

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41
Q

An increase in the money supply shifts the ______ curve to the right, and the aggregate demand curve
______.

IS; shifts to the right
IS; does not shift
LM: shifts to the right

LM; does not shift

A

LM: shifts to the right

42
Q

A tax cut shifts the ______ to the right, and the aggregate demand curve ______.

IS; shifts to the right
IS; does not shift
LM: shifts to the right
LM; does not shift

A

IS; shifts to the right

43
Q

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

IS; shifts to the right
IS; does not shift
LM: shifts to the right
LM; does not shift

A

LM; does not shift

44
Q

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

movement along the; shift in the
shift in the; movement along the
vertical; horizontal
horizontal; vertical

A

movement along the; shift in the

45
Q

A movement along an 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 monetary policy; resulting from a change in fiscal policy

resulting from a change in fiscal policy; resulting from a change in monetary policy

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

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

A

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

46
Q

A shift in the aggregate demand curve, starting from long-run equilibrium, which increases output in the
short run, will ______ in the long run, as compared to a short-run equilibrium.

increase both output and the price level
decrease output but increase prices
increase output but decrease the price level
decrease both output and the price level

A

decrease output but increase prices

47
Q

If the short-run IS-LM equilibrium occurs at a level of income below the natural level of output, then in the long run the price level will ______, shifting the ______ curve to the right and returning output to the natural
level.

increase; IS
decrease; IS
increase; LM
decrease; LM

A

decrease; LM

48
Q

If the short-run IS-LM equilibrium occurs at a level of income above the natural level of output, in the long
run the ______ will ______ in order to return output to the natural level.

price level; increase
interest rate; decrease
money supply; increase
consumption function; decrease

A

price level; increase

49
Q

The macroeconomic model may be completed by adding either the Keynesian assumption that ______ or
the classical assumption that ______.

output is fixed; prices are fixed
prices are fixed; output is fixed
the interest rate is fixed; the money supply is fixed
prices are flexible; output varies

A

prices are fixed; output is fixed

50
Q

Analysis of the short and long runs indicates that the ______ assumptions are most appropriate in ______.

classical; both the short and long runs

Keynesian; both the short and long runs

classical; the short run whereas the Keynesian assumptions are most appropriate in the long
run

Keynesian; the short run whereas the classical assumptions are most appropriate in the long
run

A

Keynesian; the short run whereas the classical assumptions are most appropriate in the long
run

51
Q

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

leftward shift in the IS curve.
rightward shift in the IS curve.
leftward shift in the LM curve.
rightward shift in the LM curve.

A

leftward shift in the IS curve.

52
Q

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

leftward shift in the IS curve.
rightward shift in the IS curve.
leftward shift in the LM curve.
rightward shift in the LM curve.

A

leftward shift in the LM curve.

53
Q

The Pigou effect:

suggests that as prices fall and real money balances rise, consumers should feel less wealthy
and spend less.

suggests that as prices fall and real money balances rise, consumers should feel wealthier and
spend more.

suggests that as prices fall and real money balances rise, consumers should feel less wealthy
but spend more.

is generally accepted as adequate proof that the economy must be able to correct itself.

A

suggests that as prices fall and real money balances rise, consumers should feel wealthier and
spend more.

54
Q

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

money demand; LM
the money supply; LM
consumer spending; IS
government spending; IS

A

consumer spending; IS

55
Q

If real money balances enter the IS-LM model both through the theory of liquidity preference and the Pigou
effect, than a fall in the price level will shift:

only the LM curve.
only the IS curve.
both the LM and the IS curves.
neither the LM nor the IS curves.

A

both the LM and the IS curves.

56
Q

If real money balances enter the IS-LM model both through the theory of liquidity preference and the Pigou
effect, than a fall in the price level will result in higher income and:

higher interest rates.
lower interest rates.
no change in interest rates.
either higher, lower, or unchanging interest rates.

A

either higher, lower, or unchanging interest rates.

57
Q

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

unexpected; reduce
unexpected; increase
expected; reduce
expected; increase

A

unexpected; reduce

58
Q

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

from debtors to creditors; a smaller
from debtors to creditors; a larger
from creditors to debtors; a smaller
from creditors to debtors; a larger

A

from debtors to creditors; a smaller

59
Q

An unexpected deflation can change demand by redistributing wealth from:

creditors to debtors, thus raising consumption.
creditors to debtors, thus lowering consumption.
debtors to creditors, thus lowering consumption.
debtors to creditors, thus raising consumption.

A

debtors to creditors, thus lowering consumption.

60
Q

Possible explanations put forth for the Great Depression do not include:

a shift in the IS curve.
a shift in the LM curve.
the debt-deflation theory.
the Pigou effect.

A

the Pigou effect.

61
Q

Investment depends on the ______ interest rate, and money demand depends on the ______ interest rate.

real; real
nominal; nominal
real; nominal
nominal; real

A

real; nominal

62
Q

In the IS-LM model, starting with no expected inflation, if expected inflation becomes negative, then the:

IS curve shifts leftward.
IS curve shifts rightward.
LM curve shifts leftward.
LM curve shifts rightward.

A

LM curve shifts rightward.

63
Q

One explanation for the impact of expected price changes on the level of output is that an increase in
expected deflation ______ the nominal interest rate and ______ the real interest rate, so that investment
spending declines.

lowers; raises
raises; lowers
raises; raises
lowers; lowers

A

lowers; raises

64
Q

In the IS-LM model, a decrease in expected inflation (an increase in expected deflation), leads to a(n):

increase in both output and the nominal interest rate.

decrease in both output and the nominal interest rate.

increase in output and a decrease in the nominal interest rate.
decrease in output and an increase in the nominal interest rate.

A

decrease in both output and the nominal interest rate.

65
Q

Other things equal, an expected deflation can change demand by:

lowering the demand for money, thus shifting the LM curve.

increasing the demand for money, thus shifting the LM curve.

raising the real interest rate for any given nominal interest rate, thus reducing desired
investment.

lowering the real interest rate for any given nominal interest rate, thus increasing desired
investment.

A

raising the real interest rate for any given nominal interest rate, thus reducing desired
investment.

66
Q

During the financial crisis of 2008–09, many financial institutions stopped making loans even to creditworthy
customers, which could be represented in the IS-LM model as a(n):

expansionary shift in the IS curve.
contractionary shift in the IS curve.
expansionary shift in the LM curve.
contractionary shift in the LM curve.

A

contractionary shift in the IS curve.

67
Q

All of the following may have contributed to the financial crisis and economic downturn of 2008–09 except:

high inflation.
low interest rates.
stock market volatility.
falling house prices.

A

high inflation.

68
Q

Most economists believe:

the Great Depression is very likely to be repeated.

it is likely that the money supply might again fall by one-fourth, but that fiscal policy would be
expansionary enough in this case to avoid a Great Depression.

it is unlikely that the money supply might fall again by one-fourth, but it is likely that fiscal policy
might be so contractionary as to cause a Great Depression.

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.

A

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.

69
Q

A liquidity trap occurs when:

banks have too much currency and close their doors to new customers.

the central bank mistakenly prints too much money, generating hyperinflation.

interest rates fall so low that monetary policy is no longer effective.

dams and locks are built to prevent flooding.

A

interest rates fall so low that monetary policy is no longer effective.

70
Q

If a liquidity trap does exist, then ______ policy will not be effective in increasing income when interest rates
reach very ______ levels.

monetary; high
monetary; low
fiscal; high
fiscal; low

A

monetary; low

71
Q

If expected inflation equals 3 percent and monetary policymakers push the nominal interest rate to 1
percent, the real interest rate equals ______ percent.

4
1
0
–2

A

–2

72
Q

When drawn with the interest rate on the vertical axis and income on the horizontal axis, the IS curve will be
steeper the:

larger the level of government spending.

smaller the level of government spending.

greater the sensitivity of investment spending to the interest rate.

smaller the sensitivity of investment spending to the interest rate.

A

smaller the sensitivity of investment spending to the interest rate.

73
Q

The slope of the IS curve depends on:

the interest sensitivity of investment and the amount of government spending.

the interest sensitivity of investment and the marginal propensity to consume.

the interest sensitivity of investment and the tax rates.

tax rates and government spending.

A

the interest sensitivity of investment and the marginal propensity to consume.

74
Q

A given increase in taxes shifts the IS curve more to the left the:

larger the marginal propensity to consume.
smaller the marginal propensity to consume.
larger the government spending.
smaller the government spending.

A

larger the marginal propensity to consume.

75
Q

The LM curve is steeper the ______ the interest sensitivity of money demand and the ______ the effect of
income on money demand.

greater; greater
greater; smaller
smaller; smaller
smaller; greater

A

smaller; greater

76
Q

If the demand function for money is M/P = 0.5Y – 100r, then the slope of the LM curve is:

  1. 001.
  2. 005.
  3. 01.
  4. 05.
A

0.005.

77
Q

If the demand function for money is M/P = 0.5Y – 100r and if M/P increases by 100, then the LM curve for
any given interest rate shifts to the:

left by 100.
left by 200.
right by 100.
right by 200.

A

right by 200.

78
Q

Other things equal, a given change in government spending has a larger effect on demand the:

flatter the LM curve.
steeper the LM curve.
smaller the interest sensitivity of money demand.
larger the income sensitivity of money demand.

A

flatter the LM curve.

79
Q

Other things equal, a given change in government spending has a larger effect on demand the:

flatter the IS curve.
steeper the IS curve.
larger the interest sensitivity of expenditure demand.
smaller the interest sensitivity of money demand.

A

steeper the IS curve.

80
Q

Other things equal, a given change in money supply has a larger effect on demand the:

flatter the IS curve.
steeper the IS curve.
smaller the interest sensitivity of expenditure demand.
smaller the income sensitivity of expenditure demand.

A

flatter the IS curve.

81
Q

Other things equal, a given change in money supply has a larger effect on demand the:

larger the income sensitivity of money demand.
smaller the income sensitivity of money demand.
flatter the LM curve.
steeper the IS curve.

A

smaller the income sensitivity of money demand.

82
Q

If money demand does not depend on the interest rate, then the LM curve is ______ and ______ policy has
no effect on output.

horizontal; fiscal
vertical; fiscal
horizontal; monetary

vertical; monetary

A

vertical; fiscal

83
Q

If money demand is infinite below some certain r (e.g., r*) and zero above r*, then the LM curve is ______
and ______ policy has no effect on output.

vertical; fiscal
horizontal; fiscal
vertical; monetary
horizontal; monetary

A

horizontal; monetary

84
Q

If investment demand is infinite below some certain r (e.g., r**) and zero above r**, then the IS curve is
______ and ______ policy has no effect on output.

vertical; monetary
horizontal; monetary
vertical; fiscal
horizontal; fiscal

A

horizontal; fiscal

85
Q

If the investment demand function is I = c – dr and the quantity of real money demanded is eY – fr, then
fiscal policy is relatively potent in influencing aggregate demand when d is ______ and f is ______.

large; small
small; small
small; large
large; large

A

small; large

86
Q

If the investment demand function is I = c – dr and the quantity of real money demanded is eY – fr, then
monetary policy is relatively potent in influencing aggregate demand when d is ______ and f is ______.

large; small
small; also small
small; large

large; also large

A

large; small

87
Q

Those economists who believe that fiscal policy is more potent than monetary policy argue that the:

responsiveness of investment to the interest rate is small.
responsiveness of investment to the interest rate is large.
IS curve is nearly horizontal.
LM curve is nearly vertical.

A

responsiveness of investment to the interest rate is small.

88
Q

Those economists who believe that monetary policy is more potent than fiscal policy argue that the

responsiveness of money demand to the interest rate is large.
responsiveness of money demand to the interest rate is small.
IS curve is nearly vertical.
LM curve is nearly horizontal.

A

responsiveness of money demand to the interest rate is small.

89
Q

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

income, the interest rate, consumption, and investment are unchanged.

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

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

income, the interest rate, consumption, and investment all rise.

A

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

90
Q

If consumption is given by C = 200 + 0.75(Y – T) and investment is given by I = 200 – 25r, then the formula
for the IS curve is:

Y = 400 – 0.75T – 25r + G.
Y = 1,600 – 3T – 100r + 4G.
Y = 400 + 0.75T – 25r – G.
Y = 1,600 + 3T – 100r – 4G.
A

Y = 1,600 – 3T – 100r + 4G.

91
Q

If the IS curve is given by Y = 1,700 – 100r and the LM curve is given by Y = 500 + 100r, then equilibrium
income and interest rate are given by:

Y = 1,100, r = 6 percent.
Y = 1,200, r = 5 percent.
Y = 1,000, r = 5 percent.
Y = 1,100, r = 5 percent.
A

Y = 1,100, r = 6 percent.

92
Q

If the IS curve is given by Y = 1,700 – 100r, the money demand function is given by (M/P)d = Y – 100r, the
money supply is 1,000, and the price level is 2, then if the money supply is raised to 1,200, equilibrium
income rises by:

200 and the interest rate falls by 2 percent.
100 and the interest rate falls by 1 percent.
50 and the interest rate falls by 0.5 percent.
200 and the interest rate remains unchanged.

A

50 and the interest rate falls by 0.5 percent.

93
Q

If investment does not depend on the interest rate, then the ______ curve is ______.

IS; vertical
IS; horizontal
LM; vertical
LM; horizontal

A

IS; vertical

94
Q

If money demand does not depend on income, then the ______ curve is ______.

IS; vertical
IS; horizontal
LM; vertical
LM; horizontal

A

LM; horizontal

95
Q

If money demand is extremely sensitive to the interest rate, then the ______ curve is ______.

IS; vertical
IS; horizontal
LM; vertical
LM; horizontal

A

LM; horizontal

96
Q

If the government wants to raise investment but keep output constant, it should:

adopt a loose monetary policy but keep fiscal policy unchanged.

adopt a loose monetary policy and a loose fiscal policy.

adopt a loose monetary policy and a tight fiscal policy.

keep monetary policy unchanged but adopt a tight fiscal policy.

A

adopt a loose monetary policy and a tight fiscal policy.

97
Q

A tax cut combined with tight money, as was the case in the United States in the early 1980s, should lead to
a:

rise in the real interest rate and a fall in investment.
fall in the real interest rate and a rise in investment.
rise in both the real interest rate and investment.
fall in both the real interest rate and investment.

A

rise in the real interest rate and a fall in investment

98
Q

An increase in the money supply:

increases income and lowers the interest rate in both the short and long runs.

increases income in both the short and long runs, but leaves the interest rate unchanged in the
long run.

lowers the interest rate in both the short and long runs, but leaves income unchanged in the
long run.

lowers the interest rate and increases income in the short run, but leaves both unchanged in
the long run.

A

owers the interest rate and increases income in the short run, but leaves both unchanged in
the long run.

99
Q

An increase in government spending raises income:

and the interest rate in the short run, but leaves both unchanged in the long run.

in the short run, but leaves it unchanged in the long run, while lowering investment.

in the short run, but leaves it unchanged in the long run, while lowering consumption.

and the interest rate in both the short and long runs.

A

in the short run, but leaves it unchanged in the long run, while lowering investment.

100
Q

An increase in taxes lowers income:

and the interest rate in the short run, but leaves both unchanged in the long run.

in the short run, but leaves it unchanged in the long run, while increasing consumption and
lowering investment.

in the short run, but leaves it unchanged in the long run, while lowering consumption and
increasing investment.

and the interest rate in both the short and long runs.

A

in the short run, but leaves it unchanged in the long run, while lowering consumption and
increasing investment.

101
Q
A
102
Q
A

macroeconomics (5 decks)

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