Deck 6: Macroeconomics Without Microeconomic Foundations

Question 1

In the IS-LM model the equilibrium level of output depends on:

A)technological progress.
B)the depreciation rate.
C)taxation.
D)all of the above.

Answer 1

taxation.

Question 2

Along the IS curve, the level of output that clears the goods market decreases in:

A)the real interest rate.
B)the price level.
C)money supply.
D)all of the above.

Answer 2

the real interest rate.

Question 3

In the IS-LM model as the taxes increase then:

A)the equilibrium level of output falls.
B)the equilibrium level of output is constant.
C)the equilibrium interest rate increases.
D)the growth rate of output is equal to zero.

Answer 3

the equilibrium level of output falls.

Question 4

If the bond prices increase the nominal interest rate:

A)fluctuates.
B)remains constant.
C)increases.
D)decreases.

Question 5

If the policy interest rate increases, then the MP curve shifts down.

Question 6

A higher long-run level of output shifts the AS curve down.

Question 7

If the price level, P, gets lower the LM curve will:

A)shift up.
B)shift down.
C)rotate.
D)none of the above.

Question 8

In a liquidity trap fiscal policy can increase output.

Question 9

If the money supply increases. then in the new equilibrium the nominal interest rate:

A)fluctuates.
B)remains constant.
C)increases.
D)decreases.

Question 10

The demand for money increases in:

A)money supply.
B)The nominal interest rate.
C)income.
D)all of the above.

Question 11

If the level of taxes, T, decreases, the LM curve will:

A)shift up.
B)shift down.
C)rotate.
D)none of the above.

Question 12

In the IS-LM model the equilibrium level of the interest rate depends on:

A)money supply.
B)government spending.
C)the marginal propensity to consume.
D)all of the above.

Question 13

If the central bank decreases money supply, M^s, the LM curve will:

A)shift up.
B)shift down.
C)rotate.
D)none of the above.

Question 14

In the IS-LM model the equilibrium level of the interest rate depends on:

A)the population growth rate.
B)government spending.
C)the depreciation rate.
D)none of the above.

Question 15

If the government increases public spending, then the real interest rate goes up.

Question 16

The IS curve gives the level of output and of the real interest rate that balances the money market.

Question 17

If the level of government spending, G, decreases, the IS curve will:

A)shift up.
B)shift down.
C)rotate.
D)none of the above.

Question 18

In the IS-LM model the equilibrium level of GDP depends on:

A)the marginal propensity to consume.
B)public expenditure.
C)money supply.
D)all of the above.

Question 19

Along the LM curve, the level of output that clears the money market increases in:

A)the real interest rate.
B)the nominal interest rate.
C)taxation.
D)none of the above.

Question 20

If both government expenditure, G, and taxation, T, increase by the same amount, the IS curve will:

A)shift up.
B)shift down.
C)rotate.
D)none of the above.

Question 21

In the IS-LM model, if investor sentiments become more optimistic, then:

A)output increases.
B)output declines.
C)the interest rate declines.
D)none of the above.

Question 22

In the IS-LM model, if public spending, G, declines, then in the new equilibrium:

A)output declines.
B)output increases
C)the real interest rate rises.
D)all of the above.

Question 23

According to the IS-LM model, in a liquidity trap an increase in taxation, T, causes the level of output, Y, to:

A)increase.
B)decline.
C)remain constant.
D)fluctuate.

Question 24

According to the Phillips curve with extrapolative expectations, a decrease in period t output generates:

A)a positive effect on period t inflation.
B)an increase in period t-1 inflation.
C)a negative effect on period t+1 inflation.
D)none of the above

Question 25

According to the Phillips curve, an increase in the level of output is associated with:

A)an increase in the expected inflation.
B)a decrease in the nominal interest rate.
C)a decrease in the rate of inflation.
D)an increase in the rate of inflation.

Question 26

If the saving rate increases in the IS-MP model, then in the new equilibrium:

A)GDP increases.
B)public spending will decrease.
C)growth becomes positive.
D)output declines.

Question 27

According to the general MP rule of the IS-MP-PC model, a 1% increase in the inflation target of the central bank will cause the central bank to:

A)lower the nominal interest rate.
B)raise the nominal interest rate.
C)always raise the nominal interest rate by more than 1%.
D)always reduce the nominal interest rate by more than 1%.

Question 28

In the IS-LM model, if government spending decreases and money supply increases, the nominal interest rate:

A)increases.
B)declines.
C)remains constant.
D)fluctuate.

Question 29

According to the IS-LM model, in a liquidity trap a decrease in public spending causes the GDP to:

A)increase.
B)decline.
C)remain constant.
D)fluctuate.

Question 30

In the IS-MP model, as public spending increases, money supply:

A)remains constant.
B)falls.
C)rises.
D)fluctuates.

Question 31

According to the general MP rule of the IS-MP-PC model, a 1% increase in the inflation rate lead the central bank to:

A)lower the real interest rate by 1%.
B)not change the nominal interest rate.
C)raise the real interest rate by more than 1%.
D)raise the nominal interest rate by more than 1%.

Question 32

According to the Phillips curve, a decrease in expected inflation generates:

A)a decrease in deflation.
B)an increase in inflation.
C)no change in the inflation rate.
D)a decrease in inflation

Question 33

In the IS-LM model, if investor sentiments deteriorate, then, in order to prevent a recession, public spending should:

A)increase.
B)decline.
C)remain constant.
D)fluctuate.

Question 34

In the IS-MP model, if the policy interest rate increases, then in equilibrium:

A)output increases
B)consumption decreases.
C)investment rises.
D)all of the above.

Question 35

In the IS-MP model, if the marginal propensity to consume increases, then in equilibrium:

A)Investment decreases.
B)The real interest rate rises.
C)output increases.
D)all of the above.

Question 36

If both government expenditure, G, and taxation, T, increase by the same amount, so that government deficit or surplus does not change, then in the new equilibrium:

A)output remains constant.
B)the interest rate declines.
C)output increases.
D)none of the above.

Question 37

According to the IS-LM model, in a liquidity trap an increase in money supply causes the interest rate to:

A)increase.
B)decline.
C)remain constant.
D)fluctuate.

Question 38

If sentiments deteriorate in the IS-MP model, then GDP decreases by:

A)less than in the IS-LM model.
B)the same as in the IS-LM model.
C)more than in the IS-LM model.
D)none of the above.

Question 39

In the IS-LM model, if investor sentiments deteriorate, then, in order to prevent a recession, money supply should:

A)increase.
B)decline.
C)remain constant.
D)fluctuate.

Question 40

In the IS-LM model the inflation rate is:

A)rising.
B)falling.
C)fluctuating.
D)zero.

Question 41

According to the IS-MP-PC model, an increase in the monetary policy sensitivity parameter ρ causes

A)an upward shifts of the AD curve.
B)no change in the AD curve.
C)a downward shift in the AD curve.
D)it depends.

Question 42

According to the IS-MP-PC model, a technological innovation leading to a higher long-run level of output causes

A)higher inflation.
B)temporarily lower GDP.
C)no change in GDP.
D)higher GDP.

Question 43

According to the IS-MP-PC model, a 1% increase in the policy interest rate leads to

A)an upward shifts of the AD curve.
B)no change in the AD curve.
C)a downward shift in the AD curve.
D)a downward shift in the AS curve.

Question 44

According to the IS-MP-PC model, a lower level of government spending causes

A)lower GDP.
B)higher inflation.
C)higher GDP.
D)none of the above.

Question 45

According to the general MP rule of the IS-MP-PC model, a 1% increase in both the current inflation rate and the inflation target of the central bank will cause the central bank to:

A)raise the nominal interest rate by 1%.
B)raise the real interest rate by 1%.
C)keep the nominal interest rate constant.
D)none of the above.

Question 46

According to the IS-MP-PC model, a decrease in the long-run level of output causes

A)an upward shift of the AS curve.
B)an upward shift of the AD curve.
C)a downward shift of the AS curve.
D)none of the above.

Question 47

According to the IS-MP-PC model, a higher level of past inflation causes

A)an upward shift of the current AD curve.
B)a downward shift in the current AS curve.
C)a downward shift in the current AD curve.
D)an upward shift of the current AS curve.

Question 48

According to the IS-MP-PC model, a lower level of past inflation causes

A)a lower current GDP.
B)a higher current inflation.
C)a higher current GDP.
D)none of the above.

Question 49

According to the IS-MP-PC model, a negative temporary investor sentiment shock will cause

A)permanently higher GDP
B)temporarily lower GDP.
C)permanently higher inflation
D)temporarily higher inflation.

Question 50

According to the IS-MP-PC model, a lower level of taxation causes

A)a temporarily lower GDP.
B)lower inflation.
C)a temporarily higher GDP.
D)none of the above.

Question 51

According to the IS-MP-PC model, an increase in the target inflation rate causes

A)an upward shifts of the AD curve.
B)no change in the AD curve.
C)a downward shift in the AD curve.
D)it depends.

Question 52

What are the effects of an increase in taxation in the IS-LM model?

Question 53

Why can fiscal policy help the economy out of a liquidity trap?

Question 54

According to the IS-MP-PC model, an increase in public expenditure, G, fully funded by an increase in taxation, T, causes

A)a temporarily lower GDP.
B)lower inflation.
C)no temporary change in GDP.
D)a temporarily higher GDP.

Question 55

What are the long and short run effects of a permanent increase in government spending according to the general IS-MP-PC (AD-AS) model?

Question 56

According to the IS-MP-PC model, a decrease in taxation, T, accompanied by an identical reduction in public expenditure, G, causes

A)higher inflation.
B)lower inflation.
C)no change in GDP.
D)higher temporary GDP.

Question 57

According to the IS-MP-PC model, an inflationary monetary policy causes

A)permanently higher GDP
B)temporarily lower GDP.
C)permanently higher inflation
D)temporarily lower inflation.

Question 58

According to the IS-LM model, how shall the government respond to a recession determined by a deterioration of investor sentiments without increasing budget deficit, G-T?

Question 59

According to the IS-MP-PC model, an inflationary monetary policy causes

A)an upward shift of the AS curve.
B)an upward shift of the AD curve.
C)a downward shift of the AS curve.
D)none of the above.

Question 60

What are the short and long-run effects of a temporary one-period increase in government spending in the general IS-MP-PC (AD-AS) model?