TAMU ECON 410 Final Review
When bond traders for the Federal Reserve seek to increase interest rates, they ____
bonds, which shifts the ____ curve to the left. - ✔️✔️Sell; LM
The reason that the income response to a fiscal expansion is generally less in the IS-LM
model than it is in the Keynesian-cross model is that the Keynesian-cross model
assumes that; - ✔️✔️investment is not affected by the interest rate whereas in the IS-L
model fiscal expansion raises the interest rate and crowds out investment.
In the IS-LM model when M rises but P remains constant, in the short-run equilibrium, in
the usual case, the interest rate ____ and output ____. - ✔️✔️falls; rises
When planned expenditure is drawn on a graph as a function of income, the slope of the
line is: - ✔️✔️between zero and one.
The interaction of the IS curve and the LM curve together determine: - ✔️✔️interest
rate and level of output.
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: -
✔️✔️300.
The LM curve, in the usual case: - ✔️✔️slopes up to the right.
An explanation for the slope of the IS curve is that as the interest rate increases, the
quantity of investment _____, and this shifts the expenditure function ____, thereby
decreasing income. - ✔️✔️decreases; downward
In the IS-LM model, which two variables are influenced by the interest rate? -
✔️✔️demand for real money balances and investment spending
One policy response to the U.S. economic slowdown of 2001 was to increase money
growth. This policy response can be represented in the IS-LM model by shifting the
____ curve to the ____. - ✔️✔️LM; right
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. - ✔️✔️decrease
When bond traders for the Federal Reserve seek to increase interest rates, they ____
bonds, which shifts the ____ curve to the left. - ✔️✔️Sell; LM
The reason that the income response to a fiscal expansion is generally less in the IS-LM
model than it is in the Keynesian-cross model is that the Keynesian-cross model
assumes that; - ✔️✔️investment is not affected by the interest rate whereas in the IS-L
model fiscal expansion raises the interest rate and crowds out investment.
In the IS-LM model when M rises but P remains constant, in the short-run equilibrium, in
the usual case, the interest rate ____ and output ____. - ✔️✔️falls; rises
When planned expenditure is drawn on a graph as a function of income, the slope of the
line is: - ✔️✔️between zero and one.
The interaction of the IS curve and the LM curve together determine: - ✔️✔️interest
rate and level of output.
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: -
✔️✔️300.
The LM curve, in the usual case: - ✔️✔️slopes up to the right.
An explanation for the slope of the IS curve is that as the interest rate increases, the
quantity of investment _____, and this shifts the expenditure function ____, thereby
decreasing income. - ✔️✔️decreases; downward
In the IS-LM model, which two variables are influenced by the interest rate? -
✔️✔️demand for real money balances and investment spending
One policy response to the U.S. economic slowdown of 2001 was to increase money
growth. This policy response can be represented in the IS-LM model by shifting the
____ curve to the ____. - ✔️✔️LM; right
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. - ✔️✔️decrease
