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1. In the
ISLM
model when government spending rises, in shortrun equilibrium, in the
usual case, the interest rate ______ and output ______.
A)
rises; falls
B)
rises; rises
C)
falls; rises
D)
falls; falls
2. If the
LM
curve is vertical and government spending rises by
G
, in the
IS

LM
analysis,
then equilibrium income rises by:
A)
G
/(1 –
MPC
).
B)
more than zero but less than
G
/(1 –
MPC
).
C)
G
.
D)
zero.
3. If
MPC
= 0.75 (and there are no income taxes but only lumpsum taxes) when
T
decreases by 100, then the
IS
curve for any given interest rate shifts to the right by:
A)
100.
B)
200.
C)
300.
D)
400.
Use the following to answer questions 45:
Exhibit: ISLM Monetary Policy
Page 1
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View Full Document4. (Exhibit:
ISLM
Monetary Policy) Based on the graph, starting from equilibrium at
interest rate
r
1
and income
Y
1
, a decrease in the money supply 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
5. (Exhibit:
ISLM
Monetary Policy) Based on the graph, starting from equilibrium at
interest rate
r
1
and income
Y
1
, an increase in the money supply 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
6. In the
ISLM
model when
M
rises but
P
remains constant, in shortrun equilibrium, in
the usual case, the interest rate ______ and output ______.
A)
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