SectionE

Question 1

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.

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

Answer 1

smaller than the multiplyer

Question 2

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

investment.
government expenditures.
the budget deficit.
taxation.

Answer 2

Investment

Question 3

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

output will increase, but the price level will decrease.
output will decrease, but the price level will increase.
both output and the price level will decrease.
both output and the price level will increase.

Answer 3

output will decrease but the price level will increase

Question 4

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

Answer 4

falls; rises

Question 5

n 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; increase; increase
increase; increase; increase; increase
decrease; decrease; decrease; decrease
increase; increase; decrease; decrease

Answer 5

decrease; decrease; decrease; decrease

Question 6

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

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

Answer 6

Leftward shift in the IS curve

Question 7

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

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

Answer 7

IS Curve downward and to the left

Question 8

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

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

Answer 8

the price level

Question 9

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

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

Answer 9

IS Curve shifts leftward

Question 10

All of the following may have contributed to the financial crisis and economic downturn of 2008-2009 except:

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

Answer 10

high inflation

Question 11

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

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

Answer 11

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

Question 12

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

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

Answer 12

falls;falls