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ECON303 FINAL > ECON303exam3chap9 > Flashcards

ECON303exam3chap9 Flashcards

1
Q

Looking only at the asset market, an increase in output would cause

A. the LM curve to shift up and to the left.	
B. the LM curve to shift down and to the right.	
C. a decrease in the real interest rate along the LM curve.	
D. an increase in the real interest rate along the LM curve.
A

D. an increase in the real interest rate along the LM curve.

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2
Q

Which of the following would shift the FE line to the left?

     A. A decrease in the future marginal productivity of capital	
 B. A decrease in the capital stock	
C. An increase in labor supply
D. A beneficial supply shock
A

B. A decrease in the capital stock

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3
Q

Suppose the intersection of the IS and LM curves is to the right of the FE line. What would most likely eliminate a disequilibrium among the asset, labor, and goods markets?

A. A rise in the price level, shifting the LM curve up and to the left
    B. A fall in the price level, shifting the IS curve down and to the left
C. A fall in the price level, shifting the LM curve down and to the right
D. A rise in the price level, shifting the IS curve up and to the right
A

A. A rise in the price level, shifting the LM curve up and to the left

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4
Q

The Fed has announced that it plans to lower the rate of monetary growth from 10% per year to 2% per year. You would expect this announcement to directly

A. increase money demand, shifting the LM curve down and to the right.	
B. increase money demand, shifting the LM curve up and to the left.	
C. decrease money demand, shifting the LM curve up and to the left.	
D. decrease money demand, shifting the LM curve down and to the right.
A

B. increase money demand, shifting the LM curve up and to the left.

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5
Q

The FE line is vertical because the level of output at full employment doesn’t depend on the

A. real interest rate.	
B. level of employment.	
C. marginal product of labor.	
D. real wage rate.
A

A. real interest rate.

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6
Q

A decrease in the effective tax rate on capital would cause the IS curve to

A. shift up and to the right.	
B. remain unchanged if taxes are fully deductible from income; otherwise, shift up and to the right.	
C. shift down and to the left.	
D. remain unchanged.
A

A. shift up and to the right.

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7
Q

Suppose the intersection of the IS and LM curves is to the left of the FE line. What would most likely eliminate a disequilibrium among the asset, labor, and goods markets?

A. A fall in the price level, shifting the LM curve down and to the right	
B. A fall in the price level, shifting the IS curve down and to the left		 
C. A rise in the price level, shifting the LM curve up and to the left	
D. A rise in the price level, shifting the IS curve up and to the right
A

A. A fall in the price level, shifting the LM curve down and to the right

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8
Q

A decline in expected future output would cause the IS curve to

A. remain unchanged.	
B. shift up and to the right.	
C. shift down and to the left.	
D. shift up and to the right only if people face borrowing constraints.
A

C. shift down and to the left.

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9
Q

Banks decide to raise the interest rate they pay on checking accounts from 1% to 2%. This action would

A. increase money demand, shifting the LM curve up and to the left.	
B. increase money demand, shifting the LM curve down and to the right.	
C. decrease money demand, shifting the LM curve down and to the right.	
D. decrease money demand, shifting the LM curve up and to the left.
A

A. increase money demand, shifting the LM curve up and to the left.

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10
Q

A temporary decrease in government purchases causes the real interest rate to ________ and output to ________ in the short run, before prices adjust to restore equilibrium.

A. fall; fall	
B. fall; rise	
C. rise; rise	
D. rise; fall
A

A. fall; fall

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11
Q

A change that increases real money demand relative to the real money supply causes

A. the LM curve to shift down and to the right.	
B. the IS curve to shift down and to the left.	
C. the IS curve to shift up and to the right.	
D. the LM curve to shift up and to the left.
A

D. the LM curve to shift up and to the left.

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12
Q

An increase in the money supply would cause the IS curve to

A. shift down and to the left.	
B. shift up and to the right.	
C. shift up and to the right only if people face borrowing constraints.	
D. remain unchanged.
A

D. remain unchanged.

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13
Q

A rise in the price of a bond causes the yield of the bond to

A. rise.	
B. rise if it's a short-term bond and fall if it's a long-term bond.	
C. fall.	
D. remain unchanged.
A

C. fall.

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14
Q

A temporary supply shock, such as a bumper crop, would

A. shift the FE line to the right and leave the IS curve unchanged.	
B. shift the FE line to the left and leave the IS curve unchanged.	
C. have no effect on the FE line.	
D. shift the FE line to the left and shift the IS curve up and to the right.
A

A. shift the FE line to the right and leave the IS curve unchanged.

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15
Q

The LM curve

A. slopes upward.	
 	B. slopes downward.	
C. is horizontal.	
D. is vertical.
A

A. slopes upward.

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16
Q

The aggregate demand curve shows the combinations of output and the price level that put the economy on

A. the FE line and the IS curve.	
B. the FE line, the IS curve, and the LM curve.	
C. the IS curve and the LM curve.	
D. the IS curve.
A

C. the IS curve and the LM curve.

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17
Q

Classical economists believe that in the short run,

A. money neutrality exists and prices do not adjust rapidly.	
B. money neutrality does not exist and prices adjust rapidly.	
C. money neutrality does not exist and prices do not adjust rapidly.	
D. money neutrality exists and prices adjust rapidly.
A

D. money neutrality exists and prices adjust rapidly.

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18
Q

Suppose the intersection of the IS and LM curves is to the left of the FE line. A decrease in the price level would most likely eliminate a disequilibrium among the asset, labor, and goods markets by

A. shifting the IS curve up and to the right.	
B. shifting the LM curve down and to the right.	
C. shifting the FE curve to the left.	
D. shifting the IS curve down and to the left.
A

B. shifting the LM curve down and to the right.

19
Q

Under an assumption of monetary neutrality, a change in the nominal money supply has

A. a proportionate effect on the price level.	
B. no effect on the price level.	
C. a more than proportionate effect on the price level.	
D. a less than proportionate effect on the price level.
A

A. a proportionate effect on the price level.

20
Q

When all markets in the economy are simultaneously in equilibrium, we say

A. markets are perfect.	
B. there is disequilibrium.	
C. there is general equilibrium.	
D. markets are complete.
A

C. there is general equilibrium.

21
Q

To reach general equilibrium, the price level adjusts to shift the ________ until it intersects with the ________.

A. IS curve; FE line and LM curve	
B. ND curve; FE line and NS curve	
C. LM curve; FE line and IS curve	
D. FE line; LM and IS curves
A

C. LM curve; FE line and IS curve

22
Q

An increase in taxes (when Ricardian equivalence doesn’t hold) causes the real interest rate to ________ and the price level to ________ in general equilibrium.

A. fall; fall	
B. rise; fall	
C. rise; rise	
D. fall; rise
A

A. fall; fall

23
Q

A decline in the price of a bond causes the yield of the bond to

A. rise.	
B. remain unchanged.	
C. rise if it's a short-term bond, but fall if it's a long-term bond.	
D. fall.
A

A. rise.

24
Q

A decrease in wealth would cause the IS curve to

A. shift down and to the left.	
B. shift up and to the right.	
C. shift up and to the right only if people face borrowing constraints.
D. remain unchanged.
A

A. shift down and to the left.

25
Q

A temporary supply shock, such as an increase in oil prices, would

A. shift the IS curve down and to the left and shift the FE line to the left.	
B. shift the IS curve down and to the left and leave the FE line unchanged.	
C. have no effect on the IS curve.	
D. shift the IS curve up and to the right, but leave the FE line unchanged.
A

C. have no effect on the IS curve.

26
Q

An increase in money supply causes the real interest rate to ________ and the price level to ________ in general equilibrium.

A. remain unchanged; rise	
B. rise; rise	
C. remain unchanged; fall	
D. fall; fall
A

A. remain unchanged; rise

27
Q

A decrease in money supply causes the real interest rate to ________ and the price level to ________ in general equilibrium.

A. fall; fall	
B. remain unchanged; rise	
C. remain unchanged; fall	
D. rise; rise
A

C. remain unchanged; fall

28
Q

An increase in investment spending would cause the FE line to

A. shift to the right.	
B. remain unchanged if Ricardian equivalence holds; otherwise, shift to the right.	
C. shift to the left.	
D. remain unchanged.
A

D. remain unchanged.

29
Q

You have just read that the Federal Reserve has increased the money supply to avoid a recession. For a given price level, you would expect the LM curve to

A. shift down and to the right as the real money supply rises.	
B. shift down and to the right as the real money supply falls.	
C. shift up and to the left as the real money supply falls.	
D. shift up and to the left as the real money supply rises.
A

A. shift down and to the right as the real money supply rises.

30
Q

An increase in the expected future marginal product of capital would cause the IS curve to

A. remain unchanged.	
B. remain unchanged if firms face borrowing constraints; otherwise, shift down and to the left.	
C. shift up and to the right.	
D. shift down and to the left.
A

C. shift up and to the right.

31
Q

A decrease in money supply causes the real interest rate to ________ and output to ________ in the short run, before prices adjust to restore equilibrium.

A. rise; fall	
B. rise; rise	
C. fall; fall	
D. fall; rise
A

A. rise; fall

32
Q

What adjusts to restore general equilibrium after a shock to the economy?

A. The FE line	
B. The LM curve	
C. The IS curve	
D. The labor supply curve
A

B. The LM curve

33
Q

The IS curve would unambiguously shift up and to the right if there were

A. an increase in the expected future marginal product of capital and a decrease in expected future output.	
B. a decrease in both corporate taxes and the expected future marginal product of capital.	
C. an increase in both government purchases and corporate taxes.	
D. an increase in both government purchases and the expected future marginal product of capital.
A

D. an increase in both government purchases and the expected future marginal product of capital.

34
Q

A temporary decline in productivity would cause the IS curve to

A. remain unchanged.	
B. shift down and to the left.	
C. shift up and to the right only if people face borrowing constraints.	
D. shift up and to the right.
A

A. remain unchanged.

35
Q

Any change that reduces desired saving relative to desired investment (for a given level of output) causes the real interest rate to ________ and shifts the IS curve ________.

A. decrease; up and to the right	
B. increase; up and to the right	
C. decrease; down and to the left	
D. increase; down and to the left
A

B. increase; up and to the right

36
Q

The probable effect of introducing an increased number of automatic teller machines is to

A. increase money demand, shifting the LM curve down and to the right.	
B. increase money demand, shifting the LM curve up and to the left.	
C. decrease money demand, shifting the LM curve down and to the right.	
D. decrease money demand, shifting the LM curve up and to the left.
A

C. decrease money demand, shifting the LM curve down and to the right.

37
Q

Keynesian economists think general equilibrium is not attained quickly because

A. the real wage rate adjusts slowly.	
B. the price level adjusts slowly.	
C. the level of output adjusts slowly.	
D. the real interest rate adjusts slowly.
A

B. the price level adjusts slowly.

38
Q

An increase in labor supply would cause the IS curve to

A. shift down and to the left.	
B. remain unchanged.	
C. shift up and to the right.	
D. shift up and to the right only if people face borrowing constraints.
A

B. remain unchanged.

39
Q

The FE line

A. is horizontal.	
B. slopes upward.	
C. is vertical.	
D. slopes downward.
A

C. is vertical.

40
Q

After a temporary beneficial supply shock hits the economy, general equilibrium is restored by

A. a shift down and to the right of the LM curve.	
B. a shift down and to the left of the IS curve.	
C. a shift up and to the left of the LM curve.	
D. a shift to the left of the FE line.
A

A. a shift down and to the right of the LM curve.

41
Q

An adverse supply shock would cause the FE line to

A. remain unchanged.	
B. remain unchanged if the shock is temporary; shift to the right if the shock is permanent.	
C. shift to the right.	
D. shift to the left.
A

D. shift to the left.

42
Q

Under monetary neutrality, an increase in the money supply causes output to ________ and the price level to ________.

A. rise; not change	
B. not change; rise	
C. rise; rise	
D. not change; not change
A

B. not change; rise

43
Q

The IS curve

A. slopes upward.	
B. is horizontal.	
C. slopes downward.	
D. is vertical.
A

C. slopes downward.

ECON303 FINAL (4 decks)

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