Question 1

Figure 6.1

-Panel (b) in Figure 6.1 reflects

Accepted Answer

A)  low interest elasticity of money demand.
B)  money demand to be highly interest elastic.
C)  money demand to be completely interest insensitive.
D)  None of the above

Question 2

The LM curve slopes upward because

Accepted Answer

A)  as income rises,savings rise,increasing output.
B)  as interest rates rise,the money supply rises,increasing output.
C)  as interest rates rise,planned investment must fall,increasing output.
D)  as income increases,money demand rises,which increases interest rates.
E)  none of the above.

Question 3

A shift in the LM curve to the left could be caused by

Accepted Answer

A)  an increase in the price level.
B)  a decrease in the money supply.
C)  an increase in the precautionary demand for money.
D)  all of the above.
E)  none of the above.

Question 4

If the consumption function is given by C = 200 + 0.6YD,then an increase in taxes of 50 units will cause the IS schedule to

Accepted Answer

A)  shift to the right by 75 units..
B)  shift to the left by 50 units.
C)  shift to the left by 75 units.
D)  shift to the left by 125.

Question 5

If the MPC is 0.6,then a 50-unit rise in taxes and a 50-unit rise in government spending will shift the IS curve

Accepted Answer

A)  to the right by 50 units.
B)  to the right by 75 units.
C)  to the left by 125 units.
D)  to the left by 75 units.

Question 6

According to Keynes,a shift in liquidity preference is

Accepted Answer

A)  a shift in the money demand schedule drawn against the interest rate as the level of income changes.
B)  a change in the amount of money demanded for given levels of the interest rate and income.
C)  a shift in individuals' portfolios away from bonds and toward holding an increased amount of money for given levels of the interest rate and income.
D)  Either a or c
E)  all of the above

Question 7

If Y=C+I+G but Mds,then

Accepted Answer

A)  interest rates must rise and output must fall.
B)  both interest rates and output must fall.
C)  interest rates must fall and output must rise.
D)  both interest rates and output must rise.
E)  none of the above.

Question 8

If the central bank follows a monetary policy in which it maintains a fixed interest rate,then

Accepted Answer

A)  the LM curve will get steeper.
B)  the IS curve will get steeper.
C)  the LM curve will become vertical.
D)  the LM curve will become horizontal.
E)  none of the above.

Question 9

Suppose that the money supply in addition to money demand increases when the interest rate increases.How do you think this change from the basic Keynesian money market would affect the slope of the LM curve? Draw a graph to illustrate.

Accepted Answer

As a result of this,the money supply cur...

Question 10

In the Keynesian system,an increase in the money stock would

Accepted Answer

A)  increase the interest rate,which,in turn,would increase aggregate demand and income.
B)  decrease the interest rate,which,in turn,would decrease aggregate demand and income.
C)  decrease the interest rate,which,in turn,would increase aggregate demand and income.
D)  decrease the interest rate but would have no effect on aggregate demand and income.

Question 11

With respect to the Keynesian liquidity trap,at very low levels of income,equilibrium in the money market occurs at points along the flat portion of the money demand schedule where

Accepted Answer

A)  the elasticity of money demand is extremely high.
B)  money demand is associated with a low interest elasticity.
C)  money demand is completely interest inelastic.
D)  None of the above

Question 12

One of the most responsive components of investment to changes in interest rates are

Accepted Answer

A)  equipment.
B)  inventories.
C)  automobile purchases.
D)  residential housing.
E)  none of the above.

Question 13

Assume that you purchased a $1,000 perpetual bond and the interest rate on that bond declined from 5 percent to 2 percent.Thus,

Accepted Answer

A)  the bond price increased by $1,500.
B)  you could sell this bond at a capital gain.
C)  if this was anticipated,the speculative demand for money fell.
D)  All of the above
E)  None of the above

Question 14

Assume that the economy is presently in equilibrium.A decline in the interest rate

Accepted Answer

A)  increases planned investment,aggregate demand,and equilibrium income.
B)  increases unplanned investment,reducing aggregate demand and equilibrium income.
C)  increases unplanned investment,increasing aggregate demand and equilibrium income.
D)  increases money demand,the money supply,aggregate demand,and equilibrium income.

Question 15

A relatively steep money demand schedule reflects the assumption that the interest elasticity of money demand is

Accepted Answer

A)  low (in absolute value) .
B)  high (in absolute value) .
C)  zero.
D)  indefinite.

Question 16

Keynes considered three motives for holding money.Which of these was similar to the classical quantity theory of money demand? Which is unique to Keynesian theory?

Accepted Answer

The transaction and precautionary motive...

Question 17

Assume that following equations describe the money market of an economy

Accepted Answer

M^s = 1,000 M^d = .2Y - 100r Calculate the L...

Question 18

If people increase their expected rate of interest,the speculative demand for money curve will _____ and money supply will _____.

Accepted Answer

A)  shift downward,remain unchanged.
B)  shift upward; remain unchanged.
C)  not be affected; shifts upward.
D)  not be affected; not be affected.

Question 19

If the money supply increases at the same time that taxes increase,then:

Accepted Answer

A)  interest rates will definitely increase.
B)  interest rates will definitely decrease.
C)  income will definitely increase.
D)  income will definitely decrease.

Question 20

In the Keynesian theory,an exogenous decrease in the demand for money shifts

Accepted Answer

A)  the LM curve to the right.
B)  the LM curve to the left.
C)  the IS curve to the right.
D)  the IS curve to the left.
E)  neither the IS or LM curves.

Exam 6: Keynesian System II: Money,interest,and Income

Assume that you purchased a $1,000 perpetual bond and the interest rate on that bond declined from 5 percent to 2 percent.Thus,

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According to Keynes,a shift in liquidity preference is

Correct AnswerverifiedShow Answer

If Y=C+I+G but Md< Ms,then

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Assume that the economy is presently in equilibrium.A decline in the interest rate

Correct AnswerverifiedShow Answer

If the money supply increases at the same time that taxes increase,then:

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The LM curve slopes upward because

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If people increase their expected rate of interest,the speculative demand for money curve will _____ and money supply will _____.

Correct AnswerverifiedShow Answer

If the consumption function is given by C = 200 + 0.6YD,then an increase in taxes of 50 units will cause the IS schedule to

Correct AnswerverifiedShow Answer

A shift in the LM curve to the left could be caused by

Correct AnswerverifiedShow Answer

Figure 6.1 -Panel (b) in Figure 6.1 reflects

Correct AnswerverifiedShow Answer

One of the most responsive components of investment to changes in interest rates are

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Assume that following equations describe the money market of an economy

Correct AnswerverifiedMs = 1,000 Md = .2Y - 100r Calculate the L...View AnswerShow Answer

A relatively steep money demand schedule reflects the assumption that the interest elasticity of money demand is

Correct AnswerverifiedShow Answer

Keynes considered three motives for holding money.Which of these was similar to the classical quantity theory of money demand? Which is unique to Keynesian theory?

Correct AnswerverifiedThe transaction and precautionary motive...View AnswerShow Answer

Suppose that the money supply in addition to money demand increases when the interest rate increases.How do you think this change from the basic Keynesian money market would affect the slope of the LM curve? Draw a graph to illustrate.

Correct AnswerverifiedAs a result of this,the money supply cur...View AnswerShow Answer

If the central bank follows a monetary policy in which it maintains a fixed interest rate,then

Correct AnswerverifiedShow Answer

If the MPC is 0.6,then a 50-unit rise in taxes and a 50-unit rise in government spending will shift the IS curve

Correct AnswerverifiedShow Answer

With respect to the Keynesian liquidity trap,at very low levels of income,equilibrium in the money market occurs at points along the flat portion of the money demand schedule where

Correct AnswerverifiedShow Answer

In the Keynesian system,an increase in the money stock would

Correct AnswerverifiedShow Answer

In the Keynesian theory,an exogenous decrease in the demand for money shifts

Correct AnswerverifiedShow Answer

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If Y=C+I+G but M^d< M^s,then

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If people increase their expected rate of interest,the speculative demand for money curve will _ and money supply will _.

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If the consumption function is given by C = 200 + 0.6Y_D,then an increase in taxes of 50 units will cause the IS schedule to

Correct Answer
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Correct Answer
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M^s = 1,000 M^d = .2Y - 100r Calculate the L...
View Answer

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The transaction and precautionary motive...
View Answer

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As a result of this,the money supply cur...
View Answer

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