ch11--practice questions

# ch11--practice questions - 1 In the IS-LM model when...

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1. In the IS-LM model when government spending rises, in short-run 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 lump-sum 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 4-5: Exhibit: IS-LM Monetary Policy Page 1

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4. (Exhibit: IS-LM 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: IS-LM 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 IS-LM model when M rises but P remains constant, in short-run equilibrium, in the usual case, the interest rate ______ and output ______. A)
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ch11--practice questions - 1 In the IS-LM model when...

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