Question 1

Recently,Americans have been increasing their debt.This is an example of:

Accepted Answer

A)  a negative aggregate demand shock.
B)  a positive aggregate demand shock.
C)  a rightward movement along the IS curve.
D)  a positive aggregate supply shock.
E)  Not enough information is given.F) A) and C)
G) B) and C)

Question 2

What is the main conclusion of both the Permanent Income hypothesis and Life Cycle model of consumption? Carefully explain.

Accepted Answer

In the PIH model,people base their consu...

Question 3

In the equation (Y - T - C) + (T - G) + (IM - EX) = I,the term (Y - T - C) is __________ and (T - G) is __________.

Accepted Answer

A)  aggregate saving;tax revenues
B)  private saving;government saving
C)  foreign saving;private saving
D)  the government debt;investment
E)  the trade balance;the financial accountF) B) and E)
G) A) and E)

Question 4

Which of the following describes the investment function in the IS curve?

Accepted Answer

A)   
B)   
C)   
D)   
E)   F) A) and E)
G) A) and D)

Question 5

In the long run,  
and  
.

Accepted Answer

A) True 
 B)False

Question 6

Suppose we assume that initially 
, 
, 
;if 
Rises 2 percent and the real interest rate falls 2 percent,short-run output:

Accepted Answer

A)  falls 2 percent.
B)  rises 1 percent.
C)  rises 3 percent.
D)  falls 1 percent.
E)  does not change.F) A) and E)
G) A) and D)

Question 7

Consider the consumption function 
) If 
,a 2 percent demand shock:

Accepted Answer

A)  raises short-run output by 1 percent.
B)  raises short-run output by 0.5 percent.
C)  raises short-run output by 4 percent.
D)  reduces short-run output by 4 percent.
E)  has no impact on short-run output.F) A) and C)
G) All of the above

Question 8

-Consider Figure 11.6 of the Life Cycle hypothesis.Area(s) __________ are periods of __________,and area(s) __________ are periods of __________.

Accepted Answer

A)  A;dissaving;C;saving
B)  C;dissaving;B;saving
C)  B;dissaving;A and C;saving
D)  A and C;dissaving;B;saving
E)  Not enough information is given.F) All of the above
G) B) and D)

Question 9

Suppose 
, 
, 
, 
,and a¯im = 0.20.For any given 
, 
Equals __________ and the economy __________.

Accepted Answer

A)  0.00;is in its long-run equilibrium
B)  1.05;has experienced a positive aggregate demand shock
C)  0.45;has experienced a positive aggregate demand shock
D)  -0.15;has experienced a negative aggregate demand shock
E)  0.05;has experienced a positive aggregate demand shockF) A) and B)
G) A) and C)

Question 10

In the short run,because financial markets respond immediately to interest rate changes,

Accepted Answer

A)  prices are very volatile.
B)  the marginal product of capital always is greater than the real interest rate.
C)  the marginal product of capital never deviates to the real interest rate.
D)  the marginal product of capital deviates to the real interest rate.
E)  investment is less volatile than output.F) None of the above
G) A) and D)

Question 11

In the simple IS curve analysis,which of the following includes both the real interest rate and the potential output?

Accepted Answer

A)  exports
B)  consumption
C)  government expenditures
D)  investment
E)  importsF) A) and D)
G) D) and E)

Question 12

Agency problems occur when:

Accepted Answer

A)  there is no information.
B)  both parties have identical information.
C)  both parties have limited information.
D)  one party in a transaction has information that the other party does not possess.
E)  None of the above is correct.F) A) and B)
G) None of the above

Question 13

In the long run,the marginal product of capital is greater than the real interest rate.

Accepted Answer

A) True 
 B)False

Question 14

If all the economies of the European Union experience a recession,the United States experiences __________ and the IS curve __________.

Accepted Answer

A)  no change;stays constant
B)  a positive aggregate demand shock;shifts right
C)  a negative aggregate demand shock;shifts left
D)  no change;shifts right
E)  Not enough information is given.F) D) and E)
G) B) and D)

Question 15

In the IS curve, 
T represents

Accepted Answer

A)  potential output.
B)  total real output.
C)  short-run fluctuations in output.
D)  the real interest rate.
E)  none of the aboveF) B) and D)
G) B) and E)

Question 16

In the IS curve, 
,a¯ is equal to:

Accepted Answer

A)  1.
B)    .
C)    .
D)    .
E)  Not enough information is given.F) B) and E)
G) C) and E)

Question 17

The investment function is proportional to potential output only.

Accepted Answer

A) True 
 B)False

Question 18

U.S.government spending on goods and services:

Accepted Answer

A)  can act as a temporary shock that causes short-run fluctuations.
B)  can act as a policy instrument designed to mitigate short-run fluctuations.
C)  represents about 20 percent of the U.S.GDP.
D)  All of the above are correct.
E)  None of the above is correct.F) B) and D)
G) B) and E)

Question 19

When the multiplier is included in the IS curve,

Accepted Answer

A)  a demand shock has a larger impact on short-run fluctuations than with the standard IS curve.
B)  it has no impact on potential output.
C)  a demand shock has a smaller impact on short-run fluctuations than with the standard IS curve.
D)  a change in taxes has no impact on short-run output.
E)  a and b are correct.F) A) and D)
G) C) and D)

Question 20

If there is an aggregate demand shock,

Accepted Answer

A)  the IS curve shifts to the right.
B)  the IS curve shifts to the left.
C)  there is rightward movement along the IS curve.
D)  there is leftward movement along the IS curve.
E)  Not enough information is given.F) C) and D)
G) B) and C)

Exam 11: The Is Curve

In the IS curve, ,a¯ is equal to:

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Suppose we assume that initially , , ;if Rises 2 percent and the real interest rate falls 2 percent,short-run output:

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U.S.government spending on goods and services:

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If there is an aggregate demand shock,

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In the short run,because financial markets respond immediately to interest rate changes,

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When the multiplier is included in the IS curve,

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In the equation (Y - T - C) + (T - G) + (IM - EX) = I,the term (Y - T - C) is __________ and (T - G) is __________.

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In the long run,the marginal product of capital is greater than the real interest rate.

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In the IS curve, T represents

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If all the economies of the European Union experience a recession,the United States experiences __________ and the IS curve __________.

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-Consider Figure 11.6 of the Life Cycle hypothesis.Area(s) __________ are periods of __________,and area(s) __________ are periods of __________.

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In the long run, and .

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Suppose , , , ,and a¯im = 0.20.For any given , Equals __________ and the economy __________.

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Agency problems occur when:

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The investment function is proportional to potential output only.

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In the simple IS curve analysis,which of the following includes both the real interest rate and the potential output?

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What is the main conclusion of both the Permanent Income hypothesis and Life Cycle model of consumption? Carefully explain.

Correct AnswerverifiedIn the PIH model,people base their consu...View AnswerShow Answer

Which of the following describes the investment function in the IS curve?

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Consider the consumption function ) If ,a 2 percent demand shock:

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Recently,Americans have been increasing their debt.This is an example of:

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In the equation (Y - T - C) + (T - G) + (IM - EX) = I,the term (Y - T - C) is and (T - G) is .

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If all the economies of the European Union experience a recession,the United States experiences and the IS curve .

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-Consider Figure 11.6 of the Life Cycle hypothesis.Area(s) are periods of ,and area(s) are periods of .

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Suppose , , , ,and a¯im = 0.20.For any given , Equals and the economy .

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In the PIH model,people base their consu...
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