Transcript Over the business cycle, investment spending ______ consumption

Over the business cycle, investment spending
______ consumption spending.
a) is inversely correlated with
b) is more volatile than
c) has about the same
volatility as
d) is less volatile than
25%
a)
1
2
3
4
5
25%
25%
b)
c)
25%
d)
Most economists believe that prices are:
a)
flexible in the short run but many
are sticky in the long run.
flexible in the long run but many
are sticky in the short run.
sticky in both the short and long
runs.
flexible in both the short and long
runs.
b)
c)
d)
1
2
3
4
5
25%
a)
25%
25%
b)
c)
25%
d)
The vertical long-run aggregate supply curve satisfies the
classical dichotomy because the natural rate of output does
NOT depend on:
a)
b)
c)
d)
the labor supply.
the supply of capital.
the money supply.
technology.
25%
a)
1
2
3
4
5
25%
25%
b)
c)
25%
d)
If the short-run aggregate supply curve is horizontal, then a
change in the money supply will change ______ in the
short run and change ______ in the long run.
a)
b)
c)
only output; only prices
only prices; only output
both prices and output; only
prices
both prices and output; both
prices and output
d)
25%
a)
1
2
3
4
5
25%
25%
b)
c)
25%
d)
Assume that the economy is initially at point A with aggregate demand
given by AD2. A shift in the aggregate demand curve to AD0 could be
the result of either a(n) ______ in the money supply or a(n) ______ in
velocity.
a)
b)
c)
d)
increase; increase
increase; decrease
decrease; increase
decrease; decrease
25%
a)
1
2
3
4
5
25%
25%
b)
c)
25%
d)
In the IS-LM model, which two variables are
influenced by the interest rate?
a)
supply of nominal money balances
and demand for real balances
demand for real balances and
government purchases
supply of nominal money balances
and investment spending
demand for real money balances
and investment spending
b)
c)
d)
1
2
3
4
5
25%
a)
25%
25%
b)
c)
25%
d)
The equilibrium condition in the Keynesian-cross
analysis in a closed economy is:
a)
income equals consumption plus investment
plus government spending.
planned expenditure equals consumption
plus planned investment plus government
spending.
actual expenditure equals planned
expenditure.
actual saving equals actual investment.
b)
c)
d)
25%
a)
1
2
3
4
5
25%
25%
b)
c)
25%
d)
In the Keynesian-cross model with a given MPC, the
government-expenditure multiplier ______ the tax
multiplier.
a)
b)
c)
d)
is larger than
equals
is smaller than
is the inverse of the
25%
a)
1
2
3
4
5
25%
25%
b)
c)
25%
d)
An increase in taxes shifts the IS curve, drawn with income
along the horizontal axis and the interest rate along the
vertical axis:
a)
b)
c)
d)
downward and to the left.
upward and to the right.
upward and to the left.
downward and to the right.
25%
a)
1
2
3
4
5
25%
25%
b)
c)
25%
d)
A decrease in the price level, holding nominal
money supply constant, will shift the LM curve:
a)
b)
c)
d)
upward and to the right.
downward and to the right.
downward and to the left.
upward and to the left.
25%
a)
1
2
3
4
5
25%
25%
b)
c)
25%
d)
In the Keynesian-cross analysis, if the consumption function
is given by C = 100 + 0.6(Y – T), and planned investment is
100, G is 100, and T is 100, then equilibrium Y is:
a)
b)
c)
d)
350
400
600
750
25%
a)
1
2
3
4
5
25%
25%
b)
c)
25%
d)
Based on the graph, starting from equilibrium at interest
rate r1 and income Y1, a tax cut would generate the new
equilibrium combination of interest rate and income:
a)
b)
c)
d)
r2, Y2
r3, Y2
r2, Y3
r3, Y3
25%
a)
1
2
3
4
5
25%
25%
b)
c)
25%
d)
Based on the graph, starting from equilibrium at interest rate r3 ,income
Y2, IS1, and LM1, if there is an increase in government spending that
shifts the IS curve to IS2, then in order to keep the interest rate constant
the Federal Reserve should _____ the money supply shifting to _____.
a)
b)
c)
d)
increase; LM2
decrease; LM2
increase; LM3
decrease; LM3
25%
a)
1
2
3
4
5
25%
25%
b)
c)
25%
d)
Based on the graph, if the economy starts from a shortterm equilibrium at A, then the long-run equilibrium will be
at ____ with a _____ price level.
a)
b)
c)
d)
B; higher
B; lower
C; higher
C; lower
25%
a)
1
2
3
4
5
25%
25%
b)
c)
25%
d)
A tax cut combined with tight money, as was the case in the
United States in the early 1980s, should lead to a:
a)
rise in the real interest rate and a
fall in investment.
fall in the real interest rate and a
rise in investment.
rise in both the real interest rate
and investment.
fall in both the real interest rate and
investment.
b)
c)
d)
1
2
3
4
5
25%
a)
25%
25%
b)
c)
25%
d)