Question 1

The Federal Reserve increases interest rates when it wants to reduce aggregate demand to fight inflation.How do increases in the interest rate reduce aggregate demand?

Accepted Answer

The answer of The Federal Reserve increases interest rates when...

Question 2

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

Accepted Answer

According to the Keynesian cross model, an increase in autonomous consumer expenditure shifts the IS curve upward, since it increases aggregate demand at every interest rate. This leads to a higher equilibrium level of output. The LM curve is not affected by changes in autonomous expenditure, as it represents the combinations of interest rates and income that equate the demand and supply of money.

Question 3

The ________ traces out the points for which total quantity of goods produced equals total quantity of goods demanded.
A)LM curve
B)IS curve
C)consumption function
D)investment schedule

Accepted Answer

The IS curve represents the equilibrium in the goods market, where the total quantity of goods produced equals the total quantity of goods demanded. Therefore, it is the best choice for the given statement. The LM curve represents equilibrium in the money market, the consumption function represents the relationship between consumption and income, and the investment schedule represents the relationship between investment and interest rates. While these are important concepts in macroeconomics, they are not directly related to the given statement.

Question 4

Everything else held constant,if aggregate output is to the ________ of the IS curve,then there is an excess ________ of goods which will cause aggregate output to fall.
A)right;supply
B)right;demand
C)left;supply
D)left;demand

Accepted Answer

When aggregate output is to the right of the IS curve, it means that at the current interest rate, the level of output (income) is higher than what the goods market can absorb, leading to an excess supply of goods. This imbalance will cause firms to reduce production, leading to a decrease in aggregate output.

Question 5

The negative relation between investment spending and the interest rate is what gives the ________ curve its ________ slope.
A)IS;upward
B)IS;downward
C)LM;downward
D)LM;upward

Accepted Answer

The IS curve shows the negative relationship between investment spending and the interest rate, which means that as interest rates increase, investment spending decreases. This gives the IS curve a downward slope.

Question 6

The ________ describes points for which the goods market is in equilibrium.
A)LM curve
B)IS curve
C)consumption function
D)investment schedule

Accepted Answer

The IS curve represents the points at which the goods market is in equilibrium, where output (Y) equals total spending (C+I+G). The LM curve, on the other hand, represents the points where the money market is in equilibrium, where the supply of money equals the demand for money. The consumption function and investment schedule are not directly related to the equilibrium in the goods market.

Question 7

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

Accepted Answer

An increase in autonomous consumer expenditure increases aggregate demand, leading to a higher equilibrium level of aggregate output. This, in turn, causes the IS curve, which represents equilibrium in the goods market, to shift to the right, reflecting an increase in income and output at each 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.
A)up;rise
B)up;fall
C)down;rise
D)down;fall

Accepted Answer

A decline in autonomous consumer expenditure means there is less demand in the economy, causing a shift downward in the aggregate demand function. This shift leads to a lower equilibrium level of aggregate output.

Question 9

Everything else held constant,if aggregate output is to the right of the IS curve,then there is an excess ________ of goods which will cause aggregate output to ________.
A)supply;fall
B)supply;rise
C)demand;fall
D)demand;rise

Accepted Answer

When aggregate output is to the right of the IS curve, it indicates that production is higher than what the economy is currently demanding at prevailing interest rates, leading to an excess supply of goods. This imbalance typically results in a decrease in aggregate output as producers adjust by reducing production.

Question 10

Everything else held constant,if aggregate output is to the ________ of the IS curve,then there is an excess ________ of goods which will cause aggregate output to rise.
A)right;supply
B)right;demand
C)left;supply
D)left;demand

Accepted Answer

When aggregate output is to the left of the IS curve, it indicates that there is an excess demand for goods. This excess demand will lead to an increase in aggregate output as producers ramp up production to meet the higher demand.

Question 11

Everything else held constant,if aggregate output is to the ________ of the IS curve,then there is an excess supply of goods which will cause aggregate output to ________.
A)right;fall
B)right;rise
C)left;fall
D)left;rise

Accepted Answer

When aggregate output is to the right of the IS curve, it indicates that at the current interest rate, the level of investment and savings are such that the output exceeds the demand, leading to an excess supply of goods. This situation will cause aggregate output to fall as producers adjust by reducing production.

Question 12

Everything else held constant,if aggregate output is to the left of the IS curve,then there is an excess ________ of goods which will cause aggregate output to ________.
A)supply;fall
B)supply;rise
C)demand;fall
D)demand;rise

Accepted Answer

The answer of Everything else held constant,if aggregate output is...

Question 13

Everything else held constant,if aggregate output is to the ________ of the IS curve,then there is an excess demand of goods which will cause aggregate output to ________.
A)right;fall
B)right;rise
C)left;fall
D)left;rise

Accepted Answer

When aggregate output is to the left of the IS curve, it indicates that the actual output is less than the desired output (investment equals savings) at the current interest rate, leading to an excess demand for goods. This excess demand encourages an increase in production, causing aggregate output to rise.

Question 14

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

Accepted Answer

A decline in autonomous consumer expenditure leads to a decrease in overall demand for goods and services, causing the aggregate demand function to shift down. This shift causes the equilibrium level of aggregate output to fall and the IS curve to shift to the left, as a lower level of output is required to achieve equilibrium at any given interest rate.

Question 15

A decrease in interest rates
A)increases the value of the dollar,net exports,and equilibrium output.
B)increases the value of the dollar,reducing net exports and equilibrium output.
C)reduces the value of the dollar,net exports,and equilibrium output.
D)reduces the value of the dollar,increasing net exports and equilibrium output.

Accepted Answer

A decrease in interest rates usually leads to a reduction in the value of the dollar, as investors are less attracted to the currency due to the lower return on investment. A lower value of the dollar makes U.S. exports cheaper for foreign buyers, leading to an increase in net exports. This increase in net exports leads to an increase in equilibrium output, as firms need to produce more to meet the rising demand for exports. Therefore, option D, which states that a decrease in interest rates reduces the value of the dollar, increasing net exports and equilibrium output, is the correct answer.

Question 16

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

Accepted Answer

An increase in autonomous consumer expenditure shifts the aggregate demand function up, leading to a higher equilibrium level of aggregate output, and causes the IS curve to shift to the right, reflecting an increase in investment and savings at each interest rate.

Question 17

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

Accepted Answer

A decline in autonomous consumer expenditure reduces the aggregate demand at every level of income, which shifts the aggregate demand function downward. As a result, the equilibrium level of aggregate output would fall, and the IS curve would shift to the left, representing a lower level of output for any given interest rate.

Question 18

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

Accepted Answer

An increase in autonomous consumer expenditure will shift the aggregate demand function upwards, as it increases the overall demand for goods and services in the economy. This will lead to a rise in the equilibrium level of aggregate output, as businesses respond to the increase in demand by increasing their production and hiring more workers.

Question 19

Other things equal,a decrease in autonomous consumption shifts the ________ curve to the ________.
A)IS;right
B)IS;left
C)LM;left
D)LM;right

Accepted Answer

Autonomous consumption is a component of aggregate demand that is not influenced by income or other variables, and a decrease in autonomous consumption means that at every level of income, aggregate demand is lower. This shifts the IS curve to the left, indicating a lower equilibrium level of income and a higher equilibrium interest rate.

Question 20

Points on the IS curve satisfy ________ market equilibrium.
A)money
B)goods
C)stock
D)bond

Accepted Answer

The IS curve represents the combinations of interest rates and output levels that bring about equilibrium in the goods market. Therefore, points on the IS curve satisfy goods market equilibrium, not money, stock, or bond market equilibrium.

Quiz 27: The IS Curve

The Federal Reserve increases interest rates when it wants to reduce aggregate demand to fight inflation.How do increases in the interest rate reduce aggregate demand?

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.

The ________ traces out the points for which total quantity of goods produced equals total quantity of goods demanded.

Everything else held constant,if aggregate output is to the of the IS curve,then there is an excess of goods which will cause aggregate output to fall.

The negative relation between investment spending and the interest rate is what gives the curve its slope.

The ________ describes points for which the goods market is in equilibrium.

In the Keynesian cross diagram,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.

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.

Everything else held constant,if aggregate output is to the right of the IS curve,then there is an excess of goods which will cause aggregate output to .

Everything else held constant,if aggregate output is to the of the IS curve,then there is an excess of goods which will cause aggregate output to rise.

Everything else held constant,if aggregate output is to the of the IS curve,then there is an excess supply of goods which will cause aggregate output to .

Everything else held constant,if aggregate output is to the left of the IS curve,then there is an excess of goods which will cause aggregate output to .

Everything else held constant,if aggregate output is to the of the IS curve,then there is an excess demand of goods which will cause aggregate output to .

In the Keynesian cross diagram,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 interest rates

In the Keynesian cross diagram,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.

In the Keynesian cross diagram,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,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.

Other things equal,a decrease in autonomous consumption shifts the curve to the .

Points on the IS curve satisfy ________ market equilibrium.