Question

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

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

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

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

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

E) An increase in taxes causes a reduction in demand for goods.

5) For this question, assume that investment spending depends only on the interest rate and no longer depends on output. Given this information, a reduction in government spending

A) will cause investment to decrease.

B) will cause investment to increase.

C) may cause investment to increase or to decrease.

D) will have no effect on output.

E) will cause a reduction in output and have no effect on the interest rate.

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

A) a leftward shift in the IS curve

B) a reduction in the interest rate and ambiguous effects on investment

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

D) no change in the interest rate if investment is independent of the interest rate

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

19) Which of the following best defines the IS curve?

A) the combinations of i and Y that maintain equilibrium in the goods market

B) illustrates the effects of changes in i on investment

C) illustrates the effects of changes in i on desired money holdings by individuals

D) the combinations of i and Y that maintain equilibrium in financial markets

21) Based on our understanding of the IS-LM model that takes into account dynamics, we know that a reduction in the money supply will cause

A) an immediate drop in Y and immediate increase in i.

B) an immediate increase in i and no initial change in Y.

C) a gradual increase in i and gradual reduction in Y.

D) none of the above

24) An increase in government spending will likely have which of the following effects?

A) a rightward shift in the IS curve

B) a leftward shift in the IS curve

C) an upward shift in the LM curve

D) a downward shift in the LM curve

25) If government spending and taxes increase by the same amount,

A) the IS curve does not shift

B) the IS curve shift leftward

C) the IS curve shifts rightward

D) the LM curve shifts downward

27) Which of the following occurs as the economy moves rightward along a given IS curve?

A) A reduction in the interest rate causes investment spending to decrease.

B) A reduction in the interest rate causes money demand to increase.

C) A reduction in the interest rate causes a reduction in the money supply.

D) An increase in government spending causes a reduction in demand for goods.

E) A reduction in taxes causes a reduction in demand for goods.

Answer 1

3 When the economy moves leftward along a given IS curve  An increase in the interest rate causes investment spending to decreaese.

15 An increase in the money supply must CAUSE a reduction in interst rate ambiguous effects on investment.

5 Investment spending depends only on the interest rate and no longer depends on output WILL CAUSE INVESTMENT TO INCREASE.

19 Best defines of IS curve is the  the combinations of i and Y that maintain equilibrium in the goods market

21 IS-LM model that takes into account dynamics, we know that a reduction in the money supply will cause a gradual increase in i and gradual reduction in Y  

27...the economy moves rightward along a given IS curve  An increase in government spending causes a reduction in demand for goods.