Practice Quiz 3

Practice Quiz 3 - ECO4203 Fall 2010 Practice Problems for...

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Page 1 ECO4203 Fall 2010 Dr. Norrbin Practice Problems for Quiz 3 1. The IS and LM curves together generally determine: A) income only. B) the interest rate only. C) both income and the interest rate. D) income, the interest rate, and the price level. Use the following to answer question 2: Exhibit: IS-LM Fiscal Policy 2. (Exhibit: IS-LM Fiscal Policy) Based on the graph, starting from equilibrium at interest rate r 1 and income Y 1 , an increase in government spending would generate the new equilibrium combination of interest rate and income: A) r 2 , Y 2 B) r 3 , Y 2 C) r 2 , Y 3 D) r 3 , Y 3
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Page 2 3. If the LM curve is vertical and taxes cut by ¨ T , in the IS - LM analysis, then equilibrium income rises by:
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