Question 1

If the quantity of money demanded exceeds the quantity supplied at the current interest rate, then

Accepted Answer

A)  bond prices and the interest rate will both rise
B)  bond prices and the interest rate will both fall
C)  bond prices will rise and the interest rate will fall
D)  bond prices will fall and the interest rate will rise
E)  the value of both stocks and bonds will increaseF) B) and E)
G) All of the above

Question 2

Which of the following will result in a parallel shift of the LM-curve to the right?

Accepted Answer

A)  an increase in interest rates
B)  an increase in autonomous saving
C)  an increase in money supply
D)  an increase in money demand
E)  an increase in investmentF) None of the above
G) All of the above

Question 3

People will hold more money if they expect

Accepted Answer

A)  bond prices to rise
B)  yields on bonds to fall
C)  yields on bonds to rise
D)  the government budget surplus to increase
E)  to get paid more frequentlyF) A) and B)
G) A) and C)

Question 4

If we change the assumption that money supply is fixed but instead assume that the amount of money supplied increases as the interest rate increases, then

Accepted Answer

A)  the LM-curve will become flatter
B)  the LM-curve will become steeper
C)  the LM-curve will shift to the left
D)  monetary policy will be more effective
E)  both A and D F) A) and E)
G) A) and D)

Question 5

In an IS-LM model, an increase in money supply will

Accepted Answer

A)  increase income, the interest rate and investment
B)  increase income but decrease the interest rate and investment
C)  increase income and investment but decrease the interest rate
D)  increase income and consumption but leave the interest rate unchanged
E)  increase the interest rate and investment but leave consumption unchangedF) B) and E)
G) D) and E)

Question 6

The IS-curve will become flatter if

Accepted Answer

A)  money demand increases
B)  investment becomes less sensitive to changes in the interest rate
C)  the marginal propensity to save increases
D)  the income tax rate is reduced
E)  either B or C occursF) B) and C)
G) A) and E)

Question 7

We can expect the IS-curve to become flatter as

Accepted Answer

A)  the supply of money decreases
B)  the marginal propensity to consume decreases
C)  the income tax rate increases
D)  investment becomes more sensitive to interest rate changes
E)  money demand becomes more sensitive to interest rate changesF) B) and D)
G) A) and E)

Question 8

The slope of the AD-curve will become flatter if

Accepted Answer

A)  money demand becomes more income inelastic
B)  money demand becomes more interest elastic
C)  investment becomes more interest elastic
D)  the marginal propensity to save increases
E)  both A and C F) None of the above
G) A) and D)

Question 9

The LM-curve becomes steeper if

Accepted Answer

A)  money demand becomes less sensitive to changes in the interest rate
B)  money demand becomes more sensitive to changes in the interest rate
C)  investment becomes more sensitive to changes in the interest rate
D)  investment becomes less sensitive to changes in the interest rate
E)  money demand becomes less sensitive to changes in incomeF) B) and C)
G) A) and C)

Question 10

Monetary policy becomes more effective as

Accepted Answer

A)  the interest sensitivity of investment increases
B)  money demand becomes less sensitive to changes in the interest rate
C)  the marginal propensity to save decreases
D)  the income tax rate decreases
E)  all of the aboveF) B) and C)
G) None of the above

Question 11

Which of the following is the equation for the IS-curve?

Accepted Answer

A)  	i = (1/b) Ao + (b/   ) Y
B)    i = (1/b) Ao – (b/ ) Y
C)   i = (k/h) Y + (1/h) (M/P)  
D)  i = (k/h) Y –  (1/h) (M/P)  
E)    	L = kY – hi   F) B) and E)
G) A) and B)

Question 12

If the central bank increases money supply, then real money balances will rise and

Accepted Answer

A)  so will the interest rate
B)  the interest rate will fall
C)  the LM-curve will shift to the left
D)  the IS-curve will shift to the right
E)  asset prices will fallF) A) and B)
G) All of the above

Question 13

If the level of government transfer payments increases while everything else stays the same, then

Accepted Answer

A)  the IS-curve will shift to the left
B)  the IS-curve will shift to the right
C)  the IS-curve will become flatter and shift to the right
D)  the LM-curve will shift to the right
E)  the LM-curve will become flatter and shift to the rightF) A) and B)
G) C) and D)

Question 14

In an IS-LM model, a decrease in autonomous saving will

Accepted Answer

A)  decrease income but increase the interest rate
B)  shift the LM-curve to the left
C)  shift the IS-curve to the left
D)  increase both income and the interest rate
E)  decrease both income and the interest rateF) A) and B)
G) B) and E)

Question 15

We can expect the IS-curve to get steeper, as

Accepted Answer

A)  money demand becomes less sensitive to changes in the interest rate
B)  the marginal propensity to save increases
C)  investment becomes more sensitive to changes in the interest rate
D)  the income tax rate decreases
E)  the expenditure multiplier increasesF) B) and E)
G) A) and B)

Question 16

The slope of the AD-curve will become steeper if

Accepted Answer

A)  money demand becomes more income inelastic
B)  money demand becomes more interest elastic
C)  investment becomes more interest elastic
D)  the income tax rate is decreased
E)  none of the aboveF) B) and D)
G) A) and B)

Question 17

The two major determinants of the level of private investment spending are

Accepted Answer

A)  the interest rate and business expectations
B)  the levels of consumption and saving
C)  the levels of national income and saving
D)  corporate income taxes and the level of saving
E)  interest rates and the level of private savingF) A) and B)
G) B) and C)

Question 18

Which of the following is the equation for the LM-curve?

Accepted Answer

A)  L= kY + hi
B)  L = kY - hi
C)  i = (k/h) Y + (1/h) (M/P) 
D)  i = (1/h) [kY - (M/P) ]
E)  i = (1/b) A? - (b/?) YF) C) and E)
G) None of the above

Question 19

If there is a decrease in government transfer payments

Accepted Answer

A)  the IS-curve will become flatter and shift to the right
B)  the IS-curve will become steeper and shift to the left
C)  the IS-curve will shift to the left
D)  the LM-curve will shift to the left
E)  the LM-curve will become steeper and shift to the leftF) A) and E)
G) C) and D)

Question 20

In the IS-LM model, the interest rate serves as a link between

Accepted Answer

A)  household saving and business investment
B)  government spending and consumer spending
C)  actions of the central bank and changes in consumer spending
D)  the goods market and the assets market
E)  domestic markets and foreign marketsF) A) and B)
G) A) and E)

Exam 11: Money, interest, and income

People will hold more money if they expect

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In the IS-LM model, the interest rate serves as a link between

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The slope of the AD-curve will become flatter if

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The two major determinants of the level of private investment spending are

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If there is a decrease in government transfer payments

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If the level of government transfer payments increases while everything else stays the same, then

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Which of the following is the equation for the IS-curve?

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If we change the assumption that money supply is fixed but instead assume that the amount of money supplied increases as the interest rate increases, then

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If the quantity of money demanded exceeds the quantity supplied at the current interest rate, then

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We can expect the IS-curve to get steeper, as

Correct AnswerverifiedShow Answer

In an IS-LM model, an increase in money supply will

Correct AnswerverifiedShow Answer

If the central bank increases money supply, then real money balances will rise and

Correct AnswerverifiedShow Answer

The slope of the AD-curve will become steeper if

Correct AnswerverifiedShow Answer

Monetary policy becomes more effective as

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We can expect the IS-curve to become flatter as

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Which of the following will result in a parallel shift of the LM-curve to the right?

Correct AnswerverifiedShow Answer

The LM-curve becomes steeper if

Correct AnswerverifiedShow Answer

Which of the following is the equation for the LM-curve?

Correct AnswerverifiedShow Answer

The IS-curve will become flatter if

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In an IS-LM model, a decrease in autonomous saving will

Correct AnswerverifiedShow Answer

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