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

Investment rises but consumption falls

Both consumption and investment remain unchanged

Consumption rises but investment falls

Both consumption and investment falls

When does the short run fluctuation occur?

There is a change in the IS curve or LM curve or both.

Only when there is a change in the IS curve.

Only when there is a change in the LM curve.

Only when there is a change in both curves.

Give the event that the government conducts expansionary fiscal policy. What would happen with the real interest rate and total output?

The real interest rate increases and total output decreases

The real interest rate decreases and total output stays unchanged.

The IS curve will shift to the right when which of the following occurs?

an increase in government spending

an increase in the money supply

a reduction in the interest rate

Which of the following occurs as the economy moves leftward along a given IS curve?

An increase in the interest rate causes investment spending to decrease.

An increase in the interest rate causes money demand to increase.

An increase in the interest rate causes a reduction in the money supply.

A reduction in government spending causes a reduction in demand for goods.

Suppose the economy is operating on the LM curve but not on the IS curve. Given this information, we know that

the money market and bond markets are in equilibrium and the goods market is not in equilibrium.

the goods market is in equilibrium and the money market is not in equilibrium.

the money market and goods market are in equilibrium and the bond market is not in equilibrium.

the money, bond and goods markets are all in equilibrium.

Suppose there is a fiscal contraction. Which of the following is a complete list of the variables that must decrease?

consumption, output and investment

consumption, output and the interest rate

An increase in the money supply must cause which of the following?

no change in output if investment is independent of the interest rate

a leftward shift in the IS curve

a reduction in the interest rate and ambiguous effects on investment

an increase in investment and a rightward shift in the IS curve

A reduction in consumer confidence will likely have which of the following effects?

a leftward shift in the IS curve

a rightward shift in the IS curve

an upward shift in the LM curve

a downward shift in the LM curve

What is the "liquidity trap" in the context of the IS-LM model?

A situation where the LM curve is vertical

A situation where interest rates are very high

A situation where changes in the money supply have no effect on interest rates

A situation where fiscal policy is ineffective

How does the introduction of forward-looking expectations impact the effectiveness of monetary policy in the IS-LM model?

Enhances the effectiveness of monetary policy

Reduces the effectiveness of monetary policy

Has no impact on the effectiveness of monetary policy

Makes the LM curve perfectly elastic

Macroeconomics Quiz Quiz

30 questions

Show all answers

1.

MULTIPLE CHOICE QUESTION

20 sec • 1 pt

The IS-LM model represents the................. equilibrium of the economy.

General

Partial

Goods market only

Money market only

2.

MULTIPLE CHOICE QUESTION

20 sec • 1 pt

The........market equilibrium shown by the IS curve

Capital

Money

Goods

Textile

3.

MULTIPLE CHOICE QUESTION

20 sec • 1 pt

IS–LM model shows the............ of the goods and money markets

Separation

Integration

Closure

None of the above

4.

MULTIPLE CHOICE QUESTION

20 sec • 1 pt

The LM curve reflects equilibrium in the...... market .

Money

Capital

Money

Textile

5.

MULTIPLE CHOICE QUESTION

20 sec • 1 pt

The....... shows the various combinations of output and the interest rate when the goods market is in equilibrium

LM curve

IS curve

Demand curve

Supply curve

6.

MULTIPLE CHOICE QUESTION

20 sec • 1 pt

The....... shows the various combinations of output and interest rate when the money market is in equilibrium.

LM curve

IS curve

Demand curve

Supply curve

7.

MULTIPLE CHOICE QUESTION

20 sec • 1 pt

Decrease in............... causes investment spending to rise which shifts aggregate demand curve up and raises the income level.

Saving

Interest rate

Income

Production

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Macroeconomics Quiz

The IS-LM model represents the................. equilibrium of the economy.

The........market equilibrium shown by the IS curve

IS–LM model shows the............ of the goods and money markets

The LM curve reflects equilibrium in the...... market .

The....... shows the various combinations of output and the interest rate when the goods market is in equilibrium

The....... shows the various combinations of output and interest rate when the money market is in equilibrium.

Decrease in............... causes investment spending to rise which shifts aggregate demand curve up and raises the income level.

The .............. model relates the monetary policy.

The IS model relates to the............. policy.

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

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Macroeconomics Quiz

The IS-LM model represents the................. equilibrium of the economy.

The........market equilibrium shown by the IS curve

IS–LM model shows the............ of the goods and money markets

The LM curve reflects equilibrium in the...... market .

The....... shows the various combinations of output and the interest rate when the goods market is in equilibrium

The....... shows the various combinations of output and interest rate when the money market is in equilibrium.

Decrease in............... causes investment spending to rise which shifts aggregate demand curve up and raises the income level.

The .............. model relates the monetary policy.

The IS model relates to the............. policy.

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

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