Mac Quiz #2

In the IS-LM model, the LM curve represents the equilibrium in which

• • Goods market is in equilibrium.

• • Money market is in equilibrium.

• • Both goods and money markets are in equilibrium.

• • Fiscal policy is effective in stabilizing the economy.

An increase in government spending in the IS-LM model will

• • Shift the IS curve to the left.

• • Shift the IS curve to the right.

• • Shift the LM curve to the left.

• • Shift the LM curve to the right.

In the IS-LM model, an increase in the money supply, assuming prices are sticky, will most likely result in

• A lower level of output and interest rates.

• A higher level of output and interest rates.

• A higher level of output and lower interest rates.

• A lower level of output and higher interest rates.

How would the IS-LM model likely respond to an unexpected increase in oil prices due to geopolitical tensions?

• • IS curve shifts to the left, LM curve shifts to the left.

• • IS curve shifts to the left, LM curve shifts to the right.

• • IS curve shifts to the right, LM curve shifts to the left.

• • IS curve shifts to the right, LM curve shifts to the right.

Suppose a country experiences a boom in its technology sector, leading to increased investment and productivity gains. In the IS-LM model, this scenario is most likely to result in

• A shift in the LM curve to the left.

• A parallel shift of both IS and LM curves to the right.

• A shift in the IS curve to the right.

• A shift in the IS curve to the left.

In the context of the Phillips curve model, which scenario best illustrates a supply-side shock affecting inflation and unemployment?

• A sudden increase in consumer spending due to government stimulus.

• A significant rise in oil prices following geopolitical tensions.

• Expansionary monetary policy aimed at lowering interest rates.

• An increase in minimum wage mandated by legislation.

According to the Phillips curve model, how would a prolonged period of economic growth with low unemployment likely affect inflation?

• Inflation is likely to decrease due to increased productivity.

• Inflation is likely to remain stable as demand matches supply.

• Inflation is likely to increase as demand outpaces supply.

• Inflation is likely to decrease as firms cut prices to attract workers.

Following a recession, policymakers implement fiscal measures to boost aggregate demand. According to the Phillips curve model, this policy action is expected to

• Increase inflation and decrease unemployment.

• Increase inflation and increase unemployment.

• Decrease inflation and decrease unemployment.

• Decrease inflation and increase unemployment.

Stagflation, characterized by high inflation and high unemployment simultaneously, can be best exemplified by

• The aftermath of a severe financial crisis with widespread bank failures.

• A period of rapid economic growth accompanied by stable prices.

• A recession triggered by a collapse in housing prices.

• An oil price shock leading to increased production costs and reduced economic activity.

In the context of stagflation, according to the Phillips curve model, which policy dilemma do policymakers often face?

• Choosing between fiscal and monetary policy tools.

• Balancing inflation control with maintaining economic growth.

• Implementing supply-side reforms to boost productivity.

• Addressing structural unemployment through education and training programs.