Question

QUESTION 19

1. In an economy with MPC = 0.8, and according to the goods market equilibrium equation in the IS-LM model, to increase (equilibrium) total output, Y, by 8, the government can:

   	A.	cut/lower the level of taxation, T, by 1.
   	B.	cut/lower the level of taxation, T, by 2.
   	C.	increase the level of taxation, T, by 2.
   	D.	none of the above.

10 points   

QUESTION 20

1. Every point on an IS curve represents:

   	A.	a combination of interest rate and total output that is consistent with equilibrium in the goods market.
   	B.	a combination of price and total output that is consistent with equilibrium in the goods market.
   	C.	a combination of interest rate and total output that is consistent with money market equilibrium.
   	D.	none of the above.

10 points   

QUESTION 21

1. An IS curve is drawn holding:

   	A.	government expenditure, G, and level of taxation, T, constant.
   	B.	interest rate and price level constant.
   	C.	money supply and price level constant.
   	D.	none of the above.

10 points   

QUESTION 22

1. According to the IS curve diagram, if interest rate in an economy is higher than the equilibrium interest rate (for a given level of income/output), then

   	A.	demand for goods/output > supply of goods/output.
   	B.	demand for goods/output = supply of goods/output.
   	C.	demand for goods/output < supply of goods/output.
   	D.	none of the above.

10 points   

QUESTION 23

1. In the LM curve diagram, for a given total income/output in the economy, the demand for real money balances is higher than real money supply when the interest rate is:

   	A.	equal to the equilibrium interest rate.
   	B.	above the equilibrium interest rate.
   	C.	below the equilibrium interest rate.
   	D.	none of the above.

10 points   

QUESTION 24

1. In the IS-LM model with MPC = 0.8, to increase equilibrium total output (Y) by 10, we need to increase government expenditure by:  

   	A.	2.
   	B.	less than 2.
   	C.	more than 2.
   	D.	none of the above.

10 points   

QUESTION 25

1. In the IS-LM model, when M / P (real money supply) rises, in the new equilibrium, investment expenditure:

   	A.	is higher.
   	B.	is lower.
   	C.	stays the same.
   	D.	none of the above.

10 points   

QUESTION 26

1. In the IS-LM model, an increase in output in the goods market upsets the money market equilibrium, because the increase in output/income causes demand for real money balances to:

   	A.	fall.
   	B.	rise.
   	C.	fluctuate randomly.
   	D.	none of the above.

10 points   

QUESTION 27

1. In the IS-LM model, for an increase in government expenditure, if the Fed wants to hold the equilibrium interest rate constant, then the Fed must:

   	A.	sell bonds in the bonds market.
   	B.	buy bonds in the bonds market.
   	C.	not act in the bonds market.
   	D.	none of the above.

10 points   

QUESTION 28

1. In the IS-LM model, if the price of output (P) is allowed/assumed to be variable, then an increase in P will:

   	A.	shift the LM curve downward/to the right.
   	B.	shift the IS curve upward/to the right.
   	C.	shift neither the IS nor the LM curve.
   	D.	none of the above.

Answer 1