# UCR--Econ 103--Hwk 3+Answers - Econ 103 Hwk 3(100 points...

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Econ 103 Hwk 3 (100 points) Name: __________________________ TA Name: Due Date: Wednesday June 1 st . Place: TA office / drop box (By 7:00 pm) Multiple Choice (3 pts each) Use the following to answer questions 1-2: Exhibit: IS-LM Fiscal Policy 1. (Exhibit: IS-LM Fiscal Policy) Based on the graph, starting from equilibrium at interest rate r 1 and income Y 1 , a decrease 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 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 Page 1

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3. If MPC = 0.75 (and there are no income taxes) when G increases by 100, then the IS curve for any given interest rate shifts to the right by: A) 100. B) 200. C) 300. D) 400. 4. According to the IS-LM model, if Congress raises taxes but the Fed wants to hold the interest rate constant, then the Fed must ______ the money supply. A) increase B) decrease C) first increase and then decrease D) first decrease and then increase 5. The aggregate demand curve generally slopes downward and to the right because, for any given money supply, M, a higher price level, P, causes a ______ real money supply M / P , which ______ the interest rate and ______ spending: A) lower; raises; reduces B) higher; lowers; increases C) lower; lowers; increases D) higher; raises; reduces 6. A tax cut shifts the ______ to the right, and the aggregate demand curve ______. A) IS ; shifts to the right B) IS ; does not shift C) LM : shifts to the right D) LM ; does not shift Page 2
Use the following to answer questions 7-8: Exhibit: IS-LM to Aggregate Demand 7. (Exhibit: IS-LM to Aggregate Demand) Based on the graph, if LM 1 shifts to LM 2 because the price level decreases from P 1 to P 2 , then, holding other factors constant: A) the aggregate demand curve will shift to the right. B)

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## This note was uploaded on 02/16/2012 for the course ECON 143D taught by Professor Gafney during the Spring '12 term at UC Riverside.

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UCR--Econ 103--Hwk 3+Answers - Econ 103 Hwk 3(100 points...

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