Question 1

ISLM model was basically .............. sector model:
A)two
B)one
C)three
D)four

Accepted Answer

The ISLM model is a two-sector model that represents the interaction between the market for goods and services (IS curve) and the money market (LM curve).

Question 2

ISLM model was firstly developed by …………
A)hansen
B)hicks
C)keynes
D)none

Accepted Answer

The ISLM model, which stands for Investment Saving-Liquidity Preference Money Supply, was first developed by John Hicks. It is a macroeconomic tool that describes the relationship between interest rates and real output in the goods and services market and the money market. Hicks introduced this model in 1937, expanding on Keynes' theory to include the dynamics of the money market alongside the goods market.

Question 3

IS curve represents the equilibrium of ............. sector.
A)money
B)goods
C)government
D)all

Accepted Answer

The IS curve represents the equilibrium in the goods market, where investment equals savings.

Question 4

Original IS-LM model is a .......... model.
A)open
B)closed
C)both
D)none

Accepted Answer

The original IS-LM model is a closed model, meaning it does not take into account international trade or capital flows.

Question 5

ISLM is used to determine:
A)income
B)interest
C)both
D)all

Accepted Answer

The IS-LM model is used to determine both income (output) and interest rates in an economy by finding the equilibrium where the goods market (IS curve) and the money market (LM curve) intersect.

Question 6

The goods market is otherwise referred to as:
A)money
B)financial
C)both
D)real sector

Accepted Answer

The goods market is referred to as the "real sector" because it deals with the production, sale, and purchase of goods and services, as opposed to financial markets that deal with securities, currencies, and other financial instruments.

Question 7

The relationship between income and interest in the IS curve is:
A)direct
B)indirect
C)no relation
D)none

Accepted Answer

The IS curve represents the relationship between interest rates and the level of income (or output) that brings the goods market into equilibrium. As interest rates increase, investment decreases, leading to a decrease in overall income or output, indicating an indirect (inverse) relationship between income and interest rates.

Question 8

The relationship between income and interest in the LM curve is:
A)direct
B)indirect
C)no relation
D)none

Accepted Answer

The LM curve represents the relationship between the interest rate and the level of income in the economy that equates the demand for and supply of money. As income increases, the demand for money increases, leading to higher interest rates to maintain equilibrium in the money market, indicating a direct relationship.

Question 9

The tax cut shift the IS curve to the:
A)right
B)left
C)no change
D)any of these.

Accepted Answer

A tax cut increases disposable income, leading to an increase in consumer spending, which shifts the IS curve to the right as overall demand for goods and services increases.

Question 10

Increase in Government expenditure shift IS curve to:
A)right
B)left
C)no change
D)any of these.

Accepted Answer

An increase in government expenditure increases aggregate demand, which shifts the IS curve to the right. This is because the IS curve represents the relationship between interest rates and the level of income that brings the goods market into equilibrium, and higher government spending directly increases aggregate demand, leading to higher equilibrium income levels for any given interest rate.

Question 11

Decrease in money supply shift the LM curve to the:
A)right
B)left
C)no change
D)any of these.

Accepted Answer

A decrease in the money supply reduces the amount of money available for lending, which increases interest rates. Higher interest rates reduce investment and consumption, which shifts the LM curve to the left. The LM curve represents the relationship between liquidity (money supply) and money demand at different levels of income and interest rates in the economy.

Question 12

One of the limitations of the ISLM model was:
A)static nature
B)open model
C)price is exogenous
D)all

Accepted Answer

The answer of One of the limitations of the ISLM...

Question 13

Who develop the ISLM open economy model?
A)mundell
B)fleming
C)both
D)none

Accepted Answer

The IS-LM model for an open economy, often referred to as the Mundell-Fleming model, was developed by both Robert Mundell and Marcus Fleming.

Question 14

For an open economy model which curve is added IS-LM?
A)ms
B)demand
C)md
D)bp.

Accepted Answer

In an open economy model, the BP (balance of payments) curve is added to the IS-LM framework. The BP curve represents the condition where the balance of payments is zero, incorporating international flows of capital and goods into the analysis.

Question 15

A temporary unemployment which exists during the period of the transfer of labor from one occupation to another is called
A)voluntary unemployment
B)involuntary unemployment
C)cyclical unemployment
D)frictional unemployment

Accepted Answer

Frictional unemployment occurs when workers are between jobs, either because they are searching for a new position or are transitioning from one job to another. It is a natural form of unemployment and often short-term.

Question 16

When more workers are engaged in a work than actually required to work, it is called
A)voluntary unemployment
B)involuntary unemployment
C)disguised unemployment
D)frictional unemployment

Accepted Answer

Disguised unemployment refers to a situation where more people are employed than are actually needed for a particular job, meaning that some workers do not contribute to productivity despite being employed. This is often seen in agricultural sectors in developing countries where, for example, a family farm might employ all family members regardless of the fact that not all are needed for the productive process.

Question 17

The position of IS curve depends on---
A)rate of interest,
B)rate of investment,
C)autonomous expenditure
D)none of the above

Accepted Answer

The IS curve represents the relationship between the interest rate and the level of income that brings the goods market into equilibrium. It depends on autonomous expenditure, which includes components like government spending, investment independent of the interest rate, and autonomous consumption, rather than directly on the rate of interest or the rate of investment.

Question 18

The curve which relates the level of income with the rate of interest which is determined by money- market equilibrium corresponding to different levels of demand for money is known as
A)is curve
B)lm curve
C)income curve
D)none of the above.

Accepted Answer

The LM curve represents the relationship between the liquidity preference (demand for money) and money supply, which is determined by the equilibrium in the money market at different levels of income. It shows the combinations of interest rates and levels of real income for which the money market is in equilibrium.

Quiz 2: Business Cycles, IS-LM Model, and Open Economy Model

ISLM model was basically .............. sector model:

ISLM model was firstly developed by …………

IS curve represents the equilibrium of ............. sector.

Original IS-LM model is a .......... model.

ISLM is used to determine:

The goods market is otherwise referred to as:

The relationship between income and interest in the IS curve is:

The relationship between income and interest in the LM curve is:

The tax cut shift the IS curve to the:

Increase in Government expenditure shift IS curve to:

Decrease in money supply shift the LM curve to the:

One of the limitations of the ISLM model was:

Who develop the ISLM open economy model?

For an open economy model which curve is added IS-LM?

A temporary unemployment which exists during the period of the transfer of labor from one occupation to another is called

When more workers are engaged in a work than actually required to work, it is called

The position of IS curve depends on---

The curve which relates the level of income with the rate of interest which is determined by money- market equilibrium corresponding to different levels of demand for money is known as