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Exam 10: Aggregate Demand I

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Question 61

Multiple Choice

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The IS curve shows combinations of ______ that are consistent with equilibrium in the market for goods and services:

A) inflation and unemployment
B) the price level and real output
C) the interest rate and the level of income
D) the interest rate and real money balances

E) All of the above
F) None of the above

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Question 62

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Consider the impact of an increase in thriftiness in the Keynesian-cross analysis.Assume that the marginal propensity to consume is unchanged,but the intercept of the consumption function is made smaller so that at every income level saving is greater.This will:

A) increase saving by the decrease in the intercept.
B) lead to no change in saving.
C) decrease saving by the decrease in the intercept.
D) lead to an increase in investment.

E) B) and D)
F) B) and C)

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Question 63

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According to the theory of liquidity preference,velocity is:

If neither investment nor consumption depends on the interest rate,then the IS curve is ______ and ______ policy has no effect on output.

With planned expenditure and the equilibrium condition Y = PE drawn on a graph with income along the horizontal axis,if income exceeds expenditure,then income is to the ______ of equilibrium income and there is unplanned inventory ______.

The IS and LM curves together generally determine:

Two interpretations of the IS-LM model are that the model explains:

The slope of the IS curve depends on:

In the Keynesian-cross model,what adjusts to move the economy to equilibrium following a change in exogenous planned spending?

Tax cuts stimulate ______ by improving worker's incentive and expand ______ by raising households' disposable income.

In the Keynesian-cross model,a decrease in the interest rate ______ planned investment spending and ______ the equilibrium level of income.

If the demand function for money is M/P = 0.5Y - 100r,then the slope of the LM curve is:

In the Keynesian-cross model,if the MPC equals .75,then a $1 billion increase in government spending increases planned expenditures by ______ and increases the equilibrium level of income by ______.

The simple investment function shows that investment ______ as ______ increases.

In the Keynesian-cross model,if taxes are reduced by 250,then the equilibrium level of income:

When firms experience unplanned inventory accumulation,they typically:

In the liquidity preference model,what adjusts to move the money market to equilibrium following a change in the money supply?

In the IS-LM model,which two variables are influenced by the interest rate?

An explanation for the slope of the IS curve is that as the interest rate increases,the quantity of investment ______,and this shifts the expenditure function ______,thereby decreasing income.

Use the following to answer questions : Exhibit: Keynesian Cross and Loanable Funds -(Exhibit: Keynesian Cross and Loanable Funds) Both graphs illustrate the inverse relationship between the equilibrium interest rate and the equilibrium level of income.The economy moves from equilibrium A to equilibrium B in the Keynesian-cross diagram as a result of a(n) ______ that shifts planned expenditures.