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| 1 | |
In its conduct of monetary policy, the Fed focuses on setting interest rate targets since changes in the interest rate affect economic activity mostly through |
| | A) | the cost of borrowing and thus the level of spending on investment and durable consumption |
| | B) | the value of government bonds and thus people's wealth |
| | C) | the return on private saving and thus people's financial investments |
| | D) | the demand for money and thus peoples' spending behavior |
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| 2 | |
The goods market and the money market are linked together by |
| | A) | monetary policy |
| | B) | fiscal policy |
| | C) | interest rates |
| | D) | the labor market |
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| 3 | |
Which of the following equations can be used to derive all combinations of the income level and the interest rate that establish an equilibrium in the expenditure sector? |
| | A) | Mo/Po = kY - hi |
| | B) | I = Io - bi |
| | C) | Y = (Co + cY) + (Io - bi) + Go + NXo |
| | D) | none of the above |
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| 4 | |
The equation: i = (1/b)Ao - (b/α)Y best describes |
| | A) | the IS-curve |
| | B) | the LM-curve |
| | C) | the AD-curve |
| | D) | none of the above |
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| 5 | |
We can expect the IS-curve to get flatter as |
| | A) | money demand becomes less sensitive to changes in the interest rate |
| | B) | the marginal propensity to save decreases |
| | C) | the expenditure multiplier decreases |
| | D) | the income tax rate increases |
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| 6 | |
Which of these policy measures will make the IS-curve steeper and shift it to the left? |
| | A) | a decrease in money supply |
| | B) | a decrease in government transfer payments |
| | C) | a decrease in lump sum taxes |
| | D) | a decrease in the income tax rate |
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| 7 | |
Any position that is to the right of (and above) the IS-curve indicates that there is |
| | A) | excess demand for goods and services |
| | B) | excess supply of goods and services |
| | C) | excess demand for money |
| | D) | excess supply of money |
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| 8 | |
Any position that is to the left of (and above) the LM-curve indicates that there is |
| | A) | excess demand for goods and services |
| | B) | excess supply of goods and services |
| | C) | excess demand for money |
| | D) | excess supply of money |
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| 9 | |
The equation i = (k/h)Y - (1/h)(Mo/Po) best describes |
| | A) | the IS-curve |
| | B) | the LM-curve |
| | C) | the AD-curve |
| | D) | none of the above |
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| 10 | |
The LM-curve becomes flatter if |
| | A) | money demand becomes less sensitive to changes in the interest rate |
| | B) | money demand becomes less sensitive to changes in income |
| | C) | money demand becomes more sensitive to changes in income |
| | D) | the monetary policy multiplier becomes larger |
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| 11 | |
If money demand becomes less sensitive to interest rate changes, the LM-curve will |
| | A) | shift to the right |
| | B) | become flatter |
| | C) | become steeper |
| | D) | remain unaffected |
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| 12 | |
If the marginal propensity to consume increases, we should expect that |
| | A) | the expenditure multiplier will become larger |
| | B) | the IS-curve will become flatter |
| | C) | the LM-curve will remain unaffected |
| | D) | all of the above |
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| 13 | |
If we change the assumption that money supply can only be changed by the actions of the central bank and instead assume that money supply is endogenous, that is, that the amount of money supplied increases with an increase in the interest rate, then we should expect that |
| | A) | the LM-curve will become flatter |
| | B) | monetary policy will become less effective |
| | C) | the IS-curve will remain unaffected |
| | D) | all of the above |
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| 14 | |
In an IS-LM framework, an increase in autonomous saving will result in |
| | A) | a decrease in income but an increase in the interest rate |
| | B) | a decrease in both income and the interest rate |
| | C) | an increase in both income and the interest rate |
| | D) | an increase in income but a decrease interest rates |
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| 15 | |
In an IS-LM model, a decrease in the income tax rate will |
| | A) | increase output and the interest rate |
| | B) | increase consumption and decrease the interest rate |
| | C) | make the IS-curve steeper |
| | D) | decrease the expenditure multiplier |
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| 16 | |
In an IS-LM model (assume a closed economy), an increase in government purchases will change the composition of GDP, since the level of G will increase |
| | A) | while C and I will remain unaffected |
| | B) | and so will the level of C and I, but by a lesser amount than G |
| | C) | and so will the level of I, while the level of C will decrease |
| | D) | and so will the level of C, while the level of I will decrease |
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| 17 | |
In an IS-LM framework, expansionary monetary policy will |
| | A) | increase both income and the interest rate |
| | B) | increase saving and decrease consumption |
| | C) | increase both consumption and investment |
| | D) | increase the size of the budget deficit |
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| 18 | |
A movement along the AD-curve from left to right is equivalent to |
| | A) | a shift of the IS-curve to the right due to a decrease in interest rates |
| | B) | a shift of the LM-curve to the right due to an increase in real money balances |
| | C) | a shift of the LM-curve to the right due to an increase in nominal money supply |
| | D) | a movement along the LM-curve from left to right due to lower real money balances |
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| 19 | |
The AD-curve will shift to the right if |
| | A) | government transfer payments are increased |
| | B) | real money balances increase due to a decrease in the price level |
| | C) | autonomous saving increases |
| | D) | the central bank restricts nominal money supply |
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| 20 | |
Movement along the AD-curve from right to left implies |
| | A) | a decrease in the interest rate and an increase in the price level and real money balances |
| | B) | an increase in the interest rate and the price level and a decrease in real money balances |
| | C) | an increase in the interest rate and the price level and an increase in nominal money balances |
| | D) | an increase in the price level and a decrease in the interest rate and nominal money balances |
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