SectionD Flashcards
Using the Keynesian-cross analysis, assume that the consumption function is given by C = 100 + 0.6(Y - T). If planned investment is 100 and T is 100, then the level of G needed to make equilibrium Y equal 1,000 is:
250.
240.
200.
260.
260
The IS-LM curve sweeps something under the rug. What is that thing?
the effect of a change in the interest rate on planned investment
the distinction between real and nominal interest rates
the distinction between real output and real income
the effect of a change in the interest rate on the quantity of money demanded
the distinction between real and nominal interest rates
In the Keynesian cross model, if taxes are reduced by 100, the immediate effect on planned expenditures is a(n) ______ for any given level of income.
increase of less than 100
increase of more than 100
increase of 100
decrease of 100
increase of less than 100
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:
remain unchanged.
drop by 2 percent.
drop by 4 percent.
drop by 1 percent.
drop by 2%
The Keynesian cross shows the:
determination of the equilibrium income and interest rate in the short run.
determination of the equilibrium income and interest rate in the long run.
determination of the equilibrium income in the long run.
determination of the equilibrium income in the short run.
determination of the equilibrium income in the short run
The <i>IS</i> curve plots the relationship between the interest rate and ______ that arises in the market for ______.
the price level; money
the price level; goods and services
equilibrium national income; money
equilibrium national income; goods and services
equilibrium national income; goods and services
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 Fed wants to fix the interest rate at 7 percent, it should set the money supply at:
1,600.
1,400.
2,000.
1,800.
1,600
The Pigou effect:
is generally accepted as adequate proof that the economy must be able to correct itself.
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.
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.
When bond traders for the Federal Reserve seek to decrease interest rates, they ______ bonds, which shifts the ______ curve to the right.
sell; IS
sell; LM
buy; IS
buy; LM
buy;LM
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.
greater the sensitivity of investment spending to the interest rate.
smaller the sensitivity of investment spending to the interest rate.
smaller the level of government spending.
smaller the sensitivity of investment spending to the interest rate.
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 creditors to debtors; a smaller
from creditors to debtors; a larger
from debtors to creditors; a smaller
from debtors to creditors; a larger
from debtors to creditors, a smaller
If real money balances affect the IS-LM model both through the theory of liquidity preference and the Pigou effect, then a fall in the price level will shift:
only the LM curve.
both the LM and the IS curves.
neither the LM nor the IS curve.
only the IS curve.
both the LM and the IS curves
