Chapter 10--MacroTB - CHAPTER 10 The IS Curve...

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97 The IS Curve CHAPTER 10 MULTIPLE-CHOICE 1. Every six weeks, or so, the Federal Reserve meets to set the __________. a. discount rate b. mortgage rate c. federal funds rate d. 10-year bond rate e. tax rate Answer: c. Section: 10.1 2. The IS curve describes short-run movements in an economy via which of the following? a. Interest rate ⇒↑ Investment ⇒↓ Output b. Interest rate Investment Output c. Tax rate Consumption Output d. Interest rate Investment Output e. Tax rate Government expenditure Output Answer: b. Section: 10.1 3. The IS curve describes the __________ relationship between __________ and __________. a. negative; tax rate; investment b. positive; interest rate; output c. positive; tax rate; government expenditure d. negative; interest rate; output e. negative; interest rate; money supply Answer: d. Section: 10.1 4. According to the IS curve, when interest rates rise, __________ and __________. a. governments borrow less; firms produce less b. firms and households borrow more; firms produce less c. firms and households borrow less; firms produce less d. firms and households borrow more; firms produce more e. firms and households borrow more; governments produce more Answer: b. Section: 10.1 5. The I in the IS curve stands for __________ and S denotes __________. a. investment; sales b. interest rate; savings c. investment; savings d. inventory; sales e. interest rate; sales Answer: c. Section: 10.1 6. The foundation of the IS curve is the equation __________, which is the __________. a. Y t = C t + I t + G t + EX t IM t ; national income identity Y t + IM t = C t + I t + G t + EX t ; national income identity c. Y t = C t + I t + G t ; national income identity d. Y t = C t + I t + G t + EX t IM t ; current account e. a and b are correct. Answer: e. Section: 10.2
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98 | Chapter 10 7. In the IS curve, consumption, government expenditure, exports, and imports are a function of a. expectations. b. current output. c. potential output. d. the interest rate. e. output fluctuations. Answer: c. Section: 10.2 8. In the IS curve, consumption is represented as a constant fraction of __________, and, therefore, is __________ than current output. a. potential output; more volatile b. potential output; smoother c. short run fluctuations; smoother d. short-run fluctuations; more volatile e. None of the above. Answer: b. Section: 10.2 9. Which of the following describes the consumption function in the IS curve? a. C t = a ¯ c b. C t = a ¯ c Y ± t + b ± R t c. C t = a ¯ c Y ± t – b ± R t d. C t = a ¯ c Y t e. C t = a ¯ c Y ˜ t Answer: d. Section: 10.2 10. Which of the following describes the investment function in the IS curve? a. I t = a ¯ i Y ± t I t / Y ± t = a ¯ i – b ± ( R t –r ¯ ) c. I t = a ¯ i Y ± t b ± R t d. I t = a ¯ i e. I t = a ¯ i Y ˜ t Answer: b. Section: 10.2 11. In the simple IS curve analysis, which of the following includes both the real interest rate and the potential output? a. exports b. consumption c. government expenditures d. investment e. imports Answer: d.
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This note was uploaded on 01/20/2011 for the course ACCT ACCT 3371 taught by Professor Smart during the Spring '10 term at Rensselaer Polytechnic Institute.

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Chapter 10--MacroTB - CHAPTER 10 The IS Curve...

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