Question 1

When there is an increase in the autonomous money supply, ceteris paribus, LM shifts:&#10;A)leftward&#10;B)rightward&#10;C)no shift&#10;D)none

Accepted Answer

An increase in the autonomous money supply, with all other factors being constant (ceteris paribus), leads to a rightward shift of the LM curve. This is because the LM curve represents the combinations of interest rates and levels of income at which money supply and money demand are in equilibrium. An increase in money supply lowers interest rates for any given level of income, making it easier for the economy to achieve equilibrium at higher levels of income, hence the rightward shift.

Question 2

An Economic model is a statement of relationship among economic ------&#10;A)variables&#10;B)phenomena&#10;C)development&#10;D)none of these

Accepted Answer

Economic models are simplified representations of complex economic processes that use variables to demonstrate relationships among different economic factors.

Question 3

LM curve shows the equilibrium condition in ---------- market&#10;A)goods market&#10;B)product market&#10;C)money market&#10;D)none of these

Accepted Answer

The LM curve represents the equilibrium condition in the money market, where the demand for money equals the supply of money.

Question 4

The simplest ISLM model consists of:&#10;A)two markets&#10;B)three markets&#10;C)four markets&#10;D)five markets

Accepted Answer

The simplest ISLM model consists of two markets: the goods market (represented by the IS curve) and the money market (represented by the LM curve).

Question 5

The equilibrium in the product market is represented by which curve?&#10;A)is&#10;B)lm&#10;C)demand&#10;D)supply curve

Accepted Answer

The IS curve represents the equilibrium in the product market, where investment equals savings (I=S). It reflects combinations of interest rates and levels of income/output where the goods market is in equilibrium.

Question 6

The IS curve has a------slope&#10;A)positive&#10;B)negative&#10;C)zero&#10;D)none of these

Accepted Answer

The IS curve, which represents the relationship between the interest rate and the level of income that brings the goods market into equilibrium, has a negative slope. This is because as interest rates decrease, investment spending increases, leading to higher overall demand and income.

Question 7

The LM curve has a------slope&#10;A)positive&#10;B)negative&#10;C)zero&#10;D)none of these

Accepted Answer

The LM curve, which represents the relationship between the liquidity preference (demand for money) and the money supply in the context of interest rates and output, has a positive slope. This is because, at higher levels of income, the demand for money increases, leading to higher interest rates if the money supply is held constant.

Question 8

ISLM model was developed by:&#10;A)hicks&#10;B)keynes&#10;C)friedman&#10;D)none of these

Accepted Answer

The ISLM model, which stands for Investment Saving-Liquidity Preference Money Supply, was developed by John Hicks. It is a macroeconomic tool that shows the relationship between interest rates and real output, in the context of goods and money markets. Hicks developed this model to interpret John Maynard Keynes' General Theory, making it a Keynesian model, but it was specifically Hicks' contribution.

Question 9

The perfectly elastic segment of the LM curve is:&#10;A)keynesian range&#10;B)classical range&#10;C)intermediate range&#10;D)none of these

Accepted Answer

The Keynesian range of the LM curve represents the perfectly elastic segment, indicating that the demand for money is highly sensitive to changes in interest rates, essentially flat, reflecting a liquidity trap situation where changes in money supply do not affect interest rates.

Question 10

Which policy is effective in the Classical range?&#10;A)monetary policy&#10;B)fiscal policy&#10;C)incomes policy&#10;D)none of these

Accepted Answer

Monetary policy is effective in the Classical range because it can be used to control the money supply and interest rates, which in turn can affect aggregate demand and output.

Question 11

Which policy is effective in the intermediate range?&#10;A)monetary policy&#10;B)fiscal policy&#10;C)both policies&#10;D)none of these

Accepted Answer

The answer of Which policy is effective in the intermediate...

Question 12

Frictional unemployment exists:&#10;A)when there is a decrease in real gdp&#10;B)because it takes time to find a job when one is first entering the labour force&#10;C)as a result of technological change&#10;D)when an individual retires

Accepted Answer

The answer of Frictional unemployment exists:&#10;A)when there is a decrease...

Question 13

The natural rate of unemployment equals the sum of those who are:&#10;A)frictionally and structurally unemployed&#10;B)frictionally andcyclicallyunemployed&#10;C)structurally andcyclicallyunemployed&#10;D)frictionally structurally and cyclically unemployed

Accepted Answer

The answer of The natural rate of unemployment equals the...

Question 14

The marginal productivity of labour is:&#10;A)the incremental output due to an increase in capital, ceteris paribus&#10;B)the incremental output due to an increase in labour, ceteris paribus.&#10;C)the incremental output due to a change in technology, ceteris paribus&#10;D)the incremental output due to a change in technology and a change in the

Accepted Answer

The answer of The marginal productivity of labour is:&#10;A)the incremental...

Question 15

When saving is greater than investment in a two-sectormodel,&#10;A)outputshould increase&#10;B)output should decrease&#10;C)output should not change&#10;D)none of these

Accepted Answer

The answer of When saving is greater than investment in...

Question 16

When investment is negatively related to the rate of interest, equilibrium output in the goods market:&#10;A)is unrelated to the rate of interest&#10;B)is inversely related to the rate of interest&#10;C)is positively related to the rate of interest&#10;D)falls as the rate of interest decreases

Accepted Answer

The answer of When investment is negatively related to the...

Question 17

Simultaneous equilibrium in the money (LM) and goods (IS) market exists:&#10;A)at an unlimited number of output levels and rates of interest&#10;B)at only one output level and rate ofinterest&#10;C)at an unlimited number of output levels and only one rate of interest&#10;D)at only one output level and an unlimited number of rates of interest

Accepted Answer

The answer of Simultaneous equilibrium in the money (LM) and...

Question 18

In which of the following situations will an increase in the money supply have no effect upon output?&#10;A)lm is steeply sloped and is is steeply sloped&#10;B)lm is vertical and is is steeply sloped&#10;C)lm is steeply sloped and is is vertical&#10;D)lm is relatively flat as is is

Accepted Answer

The answer of In which of the following situations will...

Question 19

Policy Neutrality is the main proposition of:&#10;A)supply side economics.&#10;B)keynesian economics&#10;C)monetarism&#10;D)rational expectations hypothesis

Accepted Answer

The answer of Policy Neutrality is the main proposition of:&#10;A)supply...

Question 20

Who invented the General Equilibrium analysis?&#10;A)l. walras.&#10;B)w. leontief&#10;C)j.m.keynes.&#10;D)none of these.

Accepted Answer

The answer of Who invented the General Equilibrium analysis?&#10;A)l. walras.&#10;B)w....

Deck 2: Economics Model and Is-Lm Analysis