Econ 302 Exam 4 Tophat Questions With Verified Answers

In the Keynesian cross diagram, if the marginal propensity to consume is 0.75, then a $100 million increase in government spending will increase output by - Answer $400 million If the marginal propensity to consume is 0.75 and the interest rate is fixed, then a $100 million increase in taxes will eventually change equilibrium output by - Answer -$300 million For any given interest rate, a decrease in government spending causes the planned expenditure curve to shift ---- and the IS curve to shift to the ----. - Answer down; left If the Fed wants to lower short-term interest rates, it should ---- the money supply, which will cause real money balances to ----. - Answer increase; rise Suppose a wave of credit card fraud causes consumers to use cash more frequently in transactions. How will this affect the LM curve? - Answer it will shift up In the IS-LM model, when government spending falls, the interest rate ---- and output ----. - Answer falls; falls In IS-LM equilibrium, in absolute value the government spending and tax multipliers are both ---- the multipliers from Keynesian-cross analysis. - Answer smaller than According to the IS-LM model, if Congress raises taxes but the Fed wants to hold the interest rate constant, then the Fed should __ the money supply. - Answer decrease If the government wants to raise investment but keep output constant, it should - Answer adopt expansionary monetary policy and contractionary fiscal policy. Suppose there is a housing market crash. In the IS-LM model, this will cause consumption to ---- and investment to ----. - Answer fall; rise