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072149-874

# 072149-874 - TEST 1-1 The IS curve illustrates that when...

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TEST 1 -------------------------------------------------------------------------------- 1 The IS curve illustrates that when income increases, the interest rate must rise to restore equilibrium in the asset market. interest rate must fall to restore equilibrium in the goods market. interest rate must rise to restore equilibrium in the goods market. interest rate must fall to restore equilibrium in the asset market. The correct answer: interest rate must fall to restore equilibrium in the goods market. -------------------------------------------------------------------------------- 2 As we move down along the IS curve, investment spending increases but savings does not change. investment spending and savings both increase. investment spending declines but savings increases. investment spending and savings both decline. The correct answer: investment spending and savings both increase. -------------------------------------------------------------------------------- 3 A rise in expected future output that doesn't affect labor supply would shift the IS curve _____ and the FE line _____. down; right up; right up; is unchanged down; is unchanged The correct answer: up; is unchanged -------------------------------------------------------------------------------- 4 The LM curve is horizontal. is vertical. slopes downward. slopes upward. The correct answer: slopes upward. -------------------------------------------------------------------------------- 5 The LM curve will shift down when the expected inflation declines. price level rises. real money demand declines. nominal money supply declines. The correct answer: real money demand declines. --------------------------------------------------------------------------------

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6 An increase in money demand causes the real interest rate to _____ and output to _____ in the short run, before prices adjust to restore equilibrium. rise; fall fall; rise fall; fall rise; rise The correct answer: rise; fall -------------------------------------------------------------------------------- 7 In Keynesian IS-LM analysis, the short-run effects of a decline in desired investment do not include a decline in the price level. a decline in the real interest rate. a decline in desired saving. an increase in the unemployment rate. The correct answer: a decline in the price level. -------------------------------------------------------------------------------- 8 Classical economists contend that an increase in the nominal money supply will not increase the real money supply. shift the LM curve down, causing output to increase. shift the LM curve up, causing output to increase. shift the LM curve up, causing output to decline. The correct answer: not increase the real money supply. -------------------------------------------------------------------------------- 9 A decrease in taxes (when Ricardian equivalence doesn't hold) causes the real interest rate to _____ and output to _____ in the short run, before prices adjust to restore equilibrium. fall; rise rise; fall fall; fall rise; rise The correct answer: rise; rise -------------------------------------------------------------------------------- TEST 2 1. What is the definition of a recession? A decrease in the growth rate of real GDP for 2 consecutive quarters. A decrease in real GDP for two consecutive quarters. A decrease in real GDP for 3 consecutive months. A decrease in the growth rate of real GDP for 4 consecutive quarters.
A decrease in real GDP for 4 consecutive quarters. Correct answer: A decrease in real GDP for two consecutive quarters. A recession is defined as a decrease in real GDP for 2 consecutive quarters.

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072149-874 - TEST 1-1 The IS curve illustrates that when...

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