Question 1

An increase in government spending causes the equilibrium level of aggregate output to ________ at any given interest rate and shifts the ________ curve to the ________, everything else held constant.

Accepted Answer

An increase in government spending will increase aggregate demand, shifting the IS curve to the right. This will lead to a rise in the equilibrium level of aggregate output. The LM curve will remain unchanged as it is determined by the money market, not government spending. Therefore, the correct answer is (B) rise; IS; right.

Question 2

An increase in investment spending because companies become more optimistic about investment profitability causes the aggregate demand function to shift ________, the equilibrium level of aggregate output to rise, and the IS curve to shift to the ________, everything else held constant.

Accepted Answer

An increase in investment spending raises the aggregate demand function, which leads to an increase in equilibrium output; this shift is to the right. The IS curve also shifts to the right, as higher investment spending will lead to higher demand for goods and services.

Question 3

A decrease in autonomous planned investment spending, other things equal, shifts the ________ curve to the ________.

Accepted Answer

A decrease in autonomous planned investment spending means that there is a decrease in the level of output that is consistent with equilibrium in the goods market at any interest rate. This implies that the IS curve shifts to the left, indicating a decrease in the level of output at any given interest rate.

Question 4

A reduction in government spending causes the equilibrium level of aggregate output to ________ at any given interest rate and shifts the ________ curve to the ________, everything else held constant.

Accepted Answer

A reduction in government spending will cause a decrease in aggregate demand, leading to a leftward shift of the IS curve. The equilibrium level of aggregate output will fall, as indicated by the answer choice B. The LM curve is not affected by changes in government spending.

Question 5

A rise in autonomous planned investment spending causes the equilibrium level of aggregate output to ________ and shifts the ________ curve to the ________, everything else held constant.

Accepted Answer

An increase in autonomous planned investment spending will increase the aggregate demand for goods and services, causing an increase in equilibrium level of output. This will shift the IS curve to the right. The LM curve will not be affected by a change in autonomous planned investment spending, as it is determined by the money market and not by changes in output or interest rates.

Question 6

A decline in autonomous planned investment spending causes the equilibrium level of aggregate output to ________ and shifts the ________ curve to the ________, everything else held constant.

Accepted Answer

A decline in autonomous planned investment spending reduces the overall level of aggregate demand, which results in a decrease in equilibrium output. This shift in demand also causes the IS curve to shift leftward, as it shows the relationship between interest rates and output at each point in time. The LM curve is not affected by the change in autonomous spending, as it represents the relationship between interest rates and money demand.

Question 7

A decline in autonomous consumer expenditure causes the aggregate demand function to shift ________, the equilibrium level of aggregate output to fall, and the IS curve to shift to the ________, everything else held constant.

Accepted Answer

A decline in autonomous consumer expenditure means that overall spending by consumers has decreased, leading to a decrease in aggregate demand. This shift in aggregate demand causes the equilibrium level of aggregate output to fall, as there is less demand for goods and services. As a result, the IS curve shifts to the left, as there is a lower level of output associated with any given interest rate.

Question 8

In the Keynesian cross diagram, a decline in autonomous consumer expenditure causes the aggregate demand function to shift ________ and the equilibrium level of aggregate output to ________, everything else held constant.

Accepted Answer

A decline in autonomous consumer expenditure means that at every level of output, there is a decrease in consumer spending. This will shift the aggregate demand function down (to the left) because overall spending is decreasing. This shift will then cause the equilibrium level of aggregate output to fall, since the new aggregate demand curve intersects the 45-degree line at a lower level of output.

Question 9

An increase in autonomous consumer expenditure causes the aggregate demand function to shift up, the equilibrium level of aggregate output to ________, and the IS curve to shift to the ________, everything else held constant.

Accepted Answer

An increase in autonomous consumer expenditure (which is a component of aggregate demand) leads to a higher aggregate demand at each price level, causing the equilibrium level of aggregate output to rise. This shift in aggregate demand causes the IS curve to shift to the right as well, since at every level of the interest rate, the demand for goods and services increases. Therefore, the correct answer is B - rise; right.

Question 10

An increase in autonomous consumer expenditure causes the equilibrium level of aggregate output to ________ at any given interest rate and shifts the ________ curve to the ________, everything else held constant.

Accepted Answer

According to the Keynesian cross model, an increase in autonomous consumer expenditure (such as an increase in consumer confidence or a tax cut) would cause an upward shift in the IS curve (which shows the combinations of interest rates and output where the market for goods and services is in equilibrium). This is because higher autonomous expenditure leads to higher demand for goods and services at any given interest rate, so the equilibrium level of output at that interest rate needs to be higher. Therefore, option B is correct. On the other hand, changes in autonomous expenditures do not affect the LM curve (which shows the combinations of interest rates and output where the money market is in equilibrium), so options A and C are incorrect. Option D is also incorrect because an increase in autonomous consumer expenditure would cause the IS curve to shift to the right, not to the left.

Question 11

A decrease in autonomous consumer expenditure causes the equilibrium level of aggregate output to ________ at any given interest rate and shifts the ________ curve to the ________, everything else held constant.

Accepted Answer

A decrease in autonomous consumer expenditure will cause a decrease in the level of aggregate output at any given interest rate. This means the equilibrium level of output will fall, which is shown by a leftward shift in the IS curve. The LM curve is not affected by changes in consumer expenditure.

Question 12

Everything else held constant, changes in the interest rate affect planned investment spending and hence the equilibrium level of output, but this change in investment spending ________.

Accepted Answer

Changes in the interest rate will only cause a movement along the IS curve since investment spending is just one of the components of aggregate demand, and everything else is being held constant. There will not be any crowding out effects from changes in government spending, taxes, or consumer expenditures.

Question 13

An increase in investment spending because companies become more optimistic about investment profitability causes the aggregate demand function to shift ________ and the equilibrium level of aggregate output to ________, everything else held constant.

Accepted Answer

An increase in investment spending would shift the aggregate demand function to the right (upward), leading to a rise in the equilibrium level of aggregate output. This is because higher investment spending would increase the demand for goods and services, leading to higher production and output levels.

Question 14

An increase in investment spending because companies become more optimistic about investment profitability causes the aggregate demand function to shift up, the equilibrium level of aggregate output to ________, and the IS curve to shift to the ________, everything else held constant.

Accepted Answer

An increase in investment spending leads to an increase in the aggregate demand, which in turn leads to an increase in the equilibrium level of aggregate output. This causes the IS curve to shift to the right, as output and interest rates move in the same direction.

Question 15

An increase in autonomous consumer expenditure causes the aggregate demand function to shift ________ and the equilibrium level of aggregate output to ________, everything else held constant.

Accepted Answer

An increase in autonomous consumer expenditure would shift the aggregate demand function to the right (upward), leading to a rise in the equilibrium level of aggregate output.

Question 16

A decrease in investment spending because companies become more pessimistic about investment profitability causes the aggregate demand function to shift down, the equilibrium level of aggregate output to ________, and the IS curve to shift to the ________, everything else held constant.

Accepted Answer

A decrease in investment spending leads to a decrease in aggregate demand, which in turn leads to a decrease in equilibrium level of aggregate output. This shift in aggregate demand causes the IS curve to shift to the left.

Question 17

A decline in autonomous consumer expenditure causes the aggregate demand function to shift down, the equilibrium level of aggregate output to ________, and the IS curve to shift to the ________, everything else held constant.

Accepted Answer

A decline in autonomous consumer expenditure decreases the overall demand for goods and services, causing a leftward shift in the aggregate demand curve. This leads to a fall in the equilibrium level of aggregate output. The IS curve shifts to the left as well because at every level of interest rate, there is now a lower level of aggregate demand.

Question 18

A decrease in investment spending because companies become more pessimistic about investment profitability causes the aggregate demand function to shift ________, the equilibrium level of aggregate output to fall, and the IS curve to shift to the ________, everything else held constant.

Accepted Answer

A decrease in investment spending shifts the aggregate demand function downward, leading to a lower equilibrium level of aggregate output. This also causes the IS curve, which represents equilibrium in the goods market, to shift to the left, reflecting a decrease in overall economic activity due to reduced investment.

Question 19

An increase in autonomous consumer expenditure causes the aggregate demand function to shift ________, the equilibrium level of aggregate output to rise, and the IS curve to shift to the ________, everything else held constant.

Accepted Answer

An increase in autonomous consumer expenditure leads to an upward shift in the aggregate demand function, which causes an increase in the equilibrium level of aggregate output. This results in a rightward shift of the IS curve, assuming everything else is held constant.

Question 20

A decrease in investment spending because companies become more pessimistic about investment profitability causes the aggregate demand function to shift ________ and the equilibrium level of aggregate output to ________, everything else held constant.

Accepted Answer

A decrease in investment spending will shift the aggregate demand curve downward as a component of the AD formula (AD = C + I + G + NX). Since investment is decreasing, the aggregated demand will also decrease. This will lead to a decrease in the equilibrium level of aggregate output because the total demand is lower, causing firms to decrease their production level to match the decrease in demand.

Quiz 21: The Is Curve

An increase in government spending causes the equilibrium level of aggregate output to at any given interest rate and shifts the curve to the , everything else held constant.

An increase in investment spending because companies become more optimistic about investment profitability causes the aggregate demand function to shift , the equilibrium level of aggregate output to rise, and the IS curve to shift to the , everything else held constant.

A decrease in autonomous planned investment spending, other things equal, shifts the curve to the .

A reduction in government spending causes the equilibrium level of aggregate output to at any given interest rate and shifts the curve to the , everything else held constant.

A rise in autonomous planned investment spending causes the equilibrium level of aggregate output to and shifts the curve to the , everything else held constant.

A decline in autonomous planned investment spending causes the equilibrium level of aggregate output to and shifts the curve to the , everything else held constant.

A decline in autonomous consumer expenditure causes the aggregate demand function to shift , the equilibrium level of aggregate output to fall, and the IS curve to shift to the , everything else held constant.

In the Keynesian cross diagram, a decline in autonomous consumer expenditure causes the aggregate demand function to shift and the equilibrium level of aggregate output to , everything else held constant.

An increase in autonomous consumer expenditure causes the aggregate demand function to shift up, the equilibrium level of aggregate output to , and the IS curve to shift to the , everything else held constant.

An increase in autonomous consumer expenditure causes the equilibrium level of aggregate output to at any given interest rate and shifts the curve to the , everything else held constant.

A decrease in autonomous consumer expenditure causes the equilibrium level of aggregate output to at any given interest rate and shifts the curve to the , everything else held constant.

Everything else held constant, changes in the interest rate affect planned investment spending and hence the equilibrium level of output, but this change in investment spending ________.

An increase in investment spending because companies become more optimistic about investment profitability causes the aggregate demand function to shift and the equilibrium level of aggregate output to , everything else held constant.

An increase in investment spending because companies become more optimistic about investment profitability causes the aggregate demand function to shift up, the equilibrium level of aggregate output to , and the IS curve to shift to the , everything else held constant.

An increase in autonomous consumer expenditure causes the aggregate demand function to shift and the equilibrium level of aggregate output to , everything else held constant.

A decrease in investment spending because companies become more pessimistic about investment profitability causes the aggregate demand function to shift down, the equilibrium level of aggregate output to , and the IS curve to shift to the , everything else held constant.

A decline in autonomous consumer expenditure causes the aggregate demand function to shift down, the equilibrium level of aggregate output to , and the IS curve to shift to the , everything else held constant.

A decrease in investment spending because companies become more pessimistic about investment profitability causes the aggregate demand function to shift , the equilibrium level of aggregate output to fall, and the IS curve to shift to the , everything else held constant.

An increase in autonomous consumer expenditure causes the aggregate demand function to shift , the equilibrium level of aggregate output to rise, and the IS curve to shift to the , everything else held constant.

A decrease in investment spending because companies become more pessimistic about investment profitability causes the aggregate demand function to shift and the equilibrium level of aggregate output to , everything else held constant.