P
Po
y
6.
Refer to the figure above to answer this question. In this graph, initially the economy is at
point E. Aggregate demand is given by ADO. Assume that investment increases.
Consequently, the economy moves first to point _
in the short run and then to point__
a.
A;D.
b.
D;A
@
C;B
d.
B;C.
7.
an interpretation of why the IS curve slopes downward and to the right is that as income
rises, national saving rises, and this increase drives the interest rate
a.
down, thereby decreasing investment
<b
down, thereby increasing investment
c.
up, thereby decreasing investment
d.
up, thereby increasing investment
8.
According to the theory of liquidity preference, tightening the money supply will __
nominal interest rates in the short run, and according to the Fisher effect, tightening the
money supply will __
nominal interest rate in the long run.
a.
Increase; increase
\
t.
d \)
~
d
r\'l
=-
'\'Y
(I:J!
Increase;
ecrease
/
c.
Decrease; increase
d.
Decrease; decrease
9.
The intersection of the IS and LM curves determines the values of
a.
r, Y, and P, given G, T and M
b.
r, Y, and M given G,T and P
@~
rand Y, given G, T, M and P
d.
P and Y, given G,T and M
10. In the IS-LM Model when the Federal Reserve decreases the money supply, the Federal
Reserve
bond and the interest rate
, leading to a(n)
in investment
and income
a.
Buy; rises; increase
b.
Sell; falls; decrease
e.
Sell; rises; decrease
d.
Buy; rises; decrease