Question 1

A decline in taxes ________ consumer expenditure and shifts the ________ curve to the ________,everything else held constant.
A)raises; LM; right
B)lowers; IS; left
C)raises; IS; right
D)lowers; LM; left

Accepted Answer

A decline in taxes increases consumer expenditure, which shifts the IS curve to the right, everything else held constant. It does not affect the LM curve. Therefore, option C is the correct answer.

Question 2

In the Keynesian cross diagram,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)rise; left
B)rise; right
C)fall; left
D)fall; right

Accepted Answer

According to the Keynesian cross diagram, a decrease in investment spending causes the aggregate demand function to shift down. This means that at every level of aggregate output, there is lower demand for goods and services. Therefore, the equilibrium level of aggregate output falls. Additionally, the IS curve shifts to the left because at every interest rate, there is now lower demand for credit and investment.

Question 3

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)rise; LM; right
B)rise; IS; right
C)fall; IS; left
D)fall; LM; left

Accepted Answer

An increase in autonomous planned investment spending causes an increase in aggregate demand, which in turn causes the equilibrium level of aggregate output to rise. This is shown by a rightward shift in the IS curve as output increases at each level of the interest rate. The LM curve stays the same, as it represents the combinations of interest rates and output that lead to equilibrium in the money market.

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.
A)rise; LM; right
B)fall; IS; left
C)fall; LM; left
D)rise; IS; right

Accepted Answer

A reduction in government spending will decrease output, causing a leftward shift in the IS curve (as the reduction in government spending decreases overall spending in the economy). The LM curve would not shift, as the reduction in government spending does not affect the money supply or demand for money. Therefore, the equilibrium level of aggregate output will fall at any given interest rate, and the IS curve will shift to the left.

Question 5

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)rise; LM; right
B)rise; IS; right
C)fall; IS; left
D)fall; LM; left

Accepted Answer

A decline in autonomous planned investment spending causes a decrease in aggregate demand. This leads to a fall in the equilibrium level of aggregate output. The IS curve shifts to the left as the level of output decreases for every given interest rate. The LM curve is not affected by the change in autonomous planned investment spending.

Question 6

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
A)merely causes a movement along the IS curve and not a shift.
B)is crowded out by higher taxes.
C)is crowded out by higher government spending.
D)is crowded out by lower consumer expenditures.

Accepted Answer

Changes in the interest rate only cause a movement along the IS curve, as the interest rate is already included in the equation for planned investment spending. Changes in other factors, such as taxes or government spending, would cause a shift in the IS curve.

Question 7

In the Keynesian cross diagram,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.
A)up; rise
B)up; fall
C)down; rise
D)down; fall

Accepted Answer

A decrease in investment spending will shift the aggregate demand function downward, as there will be less overall demand for goods and services. This will cause the equilibrium level of aggregate output to fall, as there is less demand for production at any given price level.

Question 8

If young business professionals in America suddenly decide that driving German-made cars is an important status symbol,net exports will tend to ________ causing aggregate demand to ________,everything else held constant.
A)fall; fall
B)fall; rise
C)rise; fall
D)rise; rise

Accepted Answer

The answer of If young business professionals in America suddenly...

Question 9

A tax cut ________ disposable income,________ consumption expenditure,and shifts the IS curve to the ________,everything else held constant.
A)increases; increases; right
B)increases; decreases; right
C)decreases; increases; left
D)decreases; decreases; left

Accepted Answer

A tax cut increases disposable income, which in turn increases consumption expenditure. This shift in consumption expenditure shifts the IS curve to the right, indicating an increase in economic activity. The other choices are incorrect because they do not accurately describe the relationship between tax cuts, disposable income, consumption expenditure, and the IS curve.

Question 10

A tax increase ________ disposable income,________ consumption expenditure,and shifts the IS curve to the ________,everything else held constant.
A)increases; increases; right
B)increases; decreases; left
C)decreases; increases; left
D)decreases; decreases; left

Accepted Answer

A tax increase will decrease disposable income, as more income is being taken out to pay the tax. This decrease in disposable income will lead to a decrease in consumption expenditure. As a result, the IS curve, which shows the equilibrium relationship between output and interest rates, will shift to the left as a decrease in consumption expenditure leads to a decrease in output or national income.

Question 11

In the Keynesian cross diagram,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.
A)up; left
B)up; right
C)down; left
D)down; right

Accepted Answer

A decrease in investment spending would result in a leftward shift of the aggregate demand function in the Keynesian cross diagram. This would cause the equilibrium level of aggregate output to fall, as shown by the intersection of the new aggregate demand function and the 45-degree line. In turn, this would shift the IS curve to the left, as output (Y) is the dependent variable in the Keynesian cross model.

Question 12

The IS curve shifts to the left when
A)taxes increase.
B)government spending increases.
C)the money supply increases.
D)autonomous planned investment spending increases.

Accepted Answer

The IS curve represents the relationship between aggregate output and interest rates for a given level of prices. The shift to the left of the IS curve indicates a decrease in aggregate output at each level of interest rates. An increase in taxes would decrease disposable income and consumption, leading to a decrease in aggregate demand and a leftward shift of the IS curve. The other choices would lead to an increase in aggregate demand and a rightward shift of the IS curve.

Question 13

In the Keynesian cross diagram,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.
A)rise; left
B)rise; right
C)fall; left
D)fall; right

Accepted Answer

An increase in investment spending will shift the aggregate demand function up, leading to a rise in the equilibrium level of aggregate output. This rise in output will cause the IS curve to shift to the right, as shown in the Keynesian cross diagram. Therefore, choice B is correct.

Question 14

In the Keynesian cross diagram,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)up; left
B)up; right
C)down; left
D)down; right

Accepted Answer

An increase in investment spending will shift the aggregate demand function upwards, as more goods and services are demanded at every price level. The equilibrium level of aggregate output will also rise, as the increase in demand leads to an increase in production to meet that demand. The IS curve will shift to the right, as a higher level of output is associated with a higher level of interest rates in the Keynesian cross diagram.

Question 15

An autonomous depreciation of the U.S.dollar makes American goods ________ relative to foreign goods and results in a ________ in U.S.net exports,everything else held constant.
A)cheaper; decline
B)cheaper; rise
C)more expensive; decline
D)more expensive; rise

Accepted Answer

When the U.S. dollar depreciates autonomously, American goods become cheaper relative to foreign goods, making them more attractive to both Americans and foreigners. This typically leads to an increase in U.S. exports and a decrease in imports, thereby increasing U.S. net exports.

Question 16

If American college students decide that drinking Mexican-brewed beer helps one get noticed,net exports will tend to fall,causing aggregate demand to ________ and the ________ curve to shift to the left,everything else held constant.
A)fall; LM
B)fall; IS
C)rise; LM
D)rise; IS

Accepted Answer

If American college students decide to drink more Mexican-brewed beer, it will increase the demand for Mexican beer and decrease the demand for American beer. As a result, net exports will fall, leading to a decrease in aggregate demand. This will shift the IS curve to the left since a fall in net exports will reduce GDP at every level of interest rates.

Question 17

In the Keynesian cross diagram,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.
A)up; rise
B)up; fall
C)down; rise
D)down; fall

Accepted Answer

An increase in investment spending will cause aggregate demand to shift up, since investment spending is a component of aggregate demand. This increase in demand will lead to a rise in the equilibrium level of aggregate output, since there will be more demand for goods and services, leading firms to increase production to meet that demand.

Question 18

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.
A)rise; LM; right
B)rise; IS; right
C)fall; IS; left
D)fall; LM; left

Accepted Answer

An increase in government spending will increase the overall level of demand in the economy, leading to an increase in output. This will cause the equilibrium level of aggregate output to rise at any given interest rate, which is represented by a rightward shift in the IS curve. The LM curve represents the relationship between interest rates and money demand/supply, and is unaffected by changes in government spending.

Question 19

A decrease in autonomous planned investment spending,other things equal,shifts the ________ curve to the ________.
A)IS; right
B)IS; left
C)LM; left
D)LM; right

Accepted Answer

Autonomous planned investment spending is a component of aggregate demand, which is represented by the IS curve. A decrease in autonomous planned investment spending would cause a decrease in aggregate demand, shifting the IS curve to the left. Therefore, the correct answer is choice B, IS curve to the left.

Question 20

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.
A)rise; LM; right
B)rise; IS; right
C)fall; IS; left
D)fall; LM; left

Accepted Answer

A decrease in autonomous consumer expenditure shifts the consumption function downward, causing a lower equilibrium level of output at any given interest rate. This shift in the consumption function will shift the IS curve leftward. The LM curve will remain unchanged.

Quiz 20: The Is Curve

A decline in taxes consumer expenditure and shifts the curve to the ,everything else held constant.

In the Keynesian cross diagram,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 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 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 decline in autonomous planned investment spending causes the equilibrium level of aggregate output to 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

In the Keynesian cross diagram,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.

If young business professionals in America suddenly decide that driving German-made cars is an important status symbol,net exports will tend to causing aggregate demand to ,everything else held constant.

A tax cut disposable income, consumption expenditure,and shifts the IS curve to the ,everything else held constant.

A tax increase disposable income, consumption expenditure,and shifts the IS curve to the ,everything else held constant.

In the Keynesian cross diagram,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.

The IS curve shifts to the left when

In the Keynesian cross diagram,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.

In the Keynesian cross diagram,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.

An autonomous depreciation of the U.S.dollar makes American goods relative to foreign goods and results in a in U.S.net exports,everything else held constant.

If American college students decide that drinking Mexican-brewed beer helps one get noticed,net exports will tend to fall,causing aggregate demand to and the curve to shift to the left,everything else held constant.

In the Keynesian cross diagram,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 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 decrease in autonomous planned investment spending,other things equal,shifts the curve to the .

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.