ECS2602 – ASSIGNMENT 2
LEARNING UNIT 5
1. Which one of the following statements is correct? In the IS-LM model:
Select one:
A. Investment is positively related to the interest rate and negatively
related to the level of output and income.
B. Investment is influenced by exogenous factors such as expectations,
business confidence and regulations.
C. Investment is influenced by the interest rate only.
D. Investment is influenced by the level of output and income only.
2. Which one of the following statements is INCORRECT? Select one:
A. When we introduce investment as an endogenous variable to our
goods market model our equilibrium equation changes from Y = Z = c0
+ c(Y – T) + Ī + G to Y = Z = c0 + c(Y – T) + I(Y,i) + G.
B. In the goods market model, investment spending is regarded as an
autonomous variable, but according to our analysis in the IS-LM model,
the investment function will change from I = Ī to I = I(Y, i).
C. When firms increase their spending on capital goods, it implies that the
expected return rate of these investment projects is higher than the
market interest rate.
D. Consumption is a positive function of the level of output and income,
whereas investment is a positive function of the level of output and
income and the interest rate.
, 3. Assume the interest rate increases when deriving the IS curve. On the goods
market model, if the interest rate increases … Select one:
A. investment spending increases, increasing the demand for goods, and
the equilibrium level of income rises.
B. investment spending decreases, decreasing the demand for goods,
and the equilibrium level of output and income falls.
C. government spending increases, the demand for goods increases and
the equilibrium level of income rises.
D. taxation decreases, the disposable income of households increases,
increasing the demand for goods, and the equilibrium level of income
rises.
4. Which one of the following factors will NOT cause a shift of the IS curve to
the left? Select one:
A. A decrease in the interest rate.
B. An increase in taxes.
C. A decrease in government spending.
D. A decrease in autonomous investment.
LEARNING UNIT 5
1. Which one of the following statements is correct? In the IS-LM model:
Select one:
A. Investment is positively related to the interest rate and negatively
related to the level of output and income.
B. Investment is influenced by exogenous factors such as expectations,
business confidence and regulations.
C. Investment is influenced by the interest rate only.
D. Investment is influenced by the level of output and income only.
2. Which one of the following statements is INCORRECT? Select one:
A. When we introduce investment as an endogenous variable to our
goods market model our equilibrium equation changes from Y = Z = c0
+ c(Y – T) + Ī + G to Y = Z = c0 + c(Y – T) + I(Y,i) + G.
B. In the goods market model, investment spending is regarded as an
autonomous variable, but according to our analysis in the IS-LM model,
the investment function will change from I = Ī to I = I(Y, i).
C. When firms increase their spending on capital goods, it implies that the
expected return rate of these investment projects is higher than the
market interest rate.
D. Consumption is a positive function of the level of output and income,
whereas investment is a positive function of the level of output and
income and the interest rate.
, 3. Assume the interest rate increases when deriving the IS curve. On the goods
market model, if the interest rate increases … Select one:
A. investment spending increases, increasing the demand for goods, and
the equilibrium level of income rises.
B. investment spending decreases, decreasing the demand for goods,
and the equilibrium level of output and income falls.
C. government spending increases, the demand for goods increases and
the equilibrium level of income rises.
D. taxation decreases, the disposable income of households increases,
increasing the demand for goods, and the equilibrium level of income
rises.
4. Which one of the following factors will NOT cause a shift of the IS curve to
the left? Select one:
A. A decrease in the interest rate.
B. An increase in taxes.
C. A decrease in government spending.
D. A decrease in autonomous investment.
