Macroeconomics Quiz on IS-LM Model and Real Interest Rate
5 Questions
7 Views

Choose a study mode

Play Quiz
Study Flashcards
Spaced Repetition
Chat to lesson

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

What is the effect of an increase in government spending on investment, given that investment spending depends only on the interest rate and not on output?

  • It will cause investment to increase
  • It will cause investment to decrease
  • It may cause investment to increase or decrease
  • It will cause a reduction in output and have no effect on the interest rate (correct)
  • In the context of the LM curve, what does it illustrate for each interest rate?

  • The goods market is in equilibrium
  • Inventory investment equals zero
  • Money supply equals money demand (correct)
  • None of the above
  • What variable(s) will increase as a result of an increase in the money supply?

  • Output
  • Investment
  • Consumption
  • All of the above (correct)
  • In the scenario of a fiscal contraction, which of the following variable(s) must decrease?

    <p>Consumption and output</p> Signup and view all the answers

    How would an increase in consumer confidence impact the IS curve?

    <p>A rightward shift in the IS curve</p> Signup and view all the answers

    Study Notes

    Macroeconomics Review

    • A decrease in the expected real interest rate occurs when the nominal interest rate is 8% and the expected inflation is 3%, resulting in a 5% expected real interest rate.
    • Risk premiums on corporate bonds tend to decrease during business cycle expansions and increase during recessions.
    • Checkable deposits are reported as liabilities on a bank's balance sheet.
    • The labor force is defined as the sum of the employed and the unemployed.
    • The variable z in the wage setting relation W = PeF(u,z) does not include the extent to which firms mark up prices over their marginal cost.
    • In the price setting equation P = (1 + m)W, m equals 0 when there is perfect competition.
    • The natural level of employment (N) will increase when consumption, disposable income, or saving increases.
    • In the consumption function C = c0 + c1YD, c1 is assumed to be none of the above (negative, larger than c0, different at different levels of income).
    • The marginal propensity to save is 0.25 in the consumption equation C = 250 + 0.75YD.
    • The multiplier for the economy is 5 in the consumption equation C = 250 + 0.8YD.
    • An increase in autonomous consumption will cause an increase in equilibrium income, equilibrium disposable income, and demand.

    Economic Equilibrium

    • In a closed economy, I = S + (T - G) is true when the economy is in equilibrium.
    • A decrease in business confidence will cause a reduction in investment, leading to a reduction in the multiplier.
    • A reduction in government spending will cause a reduction in output and have no effect on the interest rate.

    LM Curve

    • The LM curve illustrates the level of output where money supply equals money demand for each interest rate.
    • An increase in the money supply will cause an increase in output, investment, and consumption.

    Fiscal Policy

    • A fiscal contraction will cause a decrease in consumption, investment, and output.
    • An increase in consumer confidence will cause a rightward shift in the IS curve.

    Monetary Policy

    • A Fed purchase of securities will most likely have an expansionary effect on the economy.

    Studying That Suits You

    Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

    Quiz Team

    Description

    Test your knowledge of the IS-LM model shifts and real interest rate calculations in Macroeconomics. Questions cover shifts in the IS and LM curves, as well as calculations for the expected real interest rate.

    More Like This

    Econ 101: Aggregate Demand and IS-LM Model
    20 questions
    IS-LM Model Refreshment Quiz
    27 questions
    Econ 102: Developing the IS-LM Model Quiz
    18 questions
    Macroeconomics Chapter 5: IS-LM Model Overview
    32 questions
    Use Quizgecko on...
    Browser
    Browser