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EconomicsofMoney,Banking,andFinancialMarkets,12e(Mishkin)
Chapter27WebChapter2:TheISLMModel
27.1Keynes'sFixedPriceLevelAssumptionandtheISCurve
1)BecauinflationwasnotariousproblemduringtheGreatDepression,Keynes'sanalysis
assumed
A)thatunemploymentalsowasnotaproblem.
B)thatthemoneysupplywasfixed.
C)thatthepricelevelwasfixed.
D)thatmonetarypolicyisnoteffective.
Answer:C
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AACSB:ReflectiveThinking
2)Themoneymarketisinequilibrium
A)atanypointontheIScurve.
B)atanypointontheLMcurve.
C)atonlyonepointontheLMcurve.
D)onlyattheinterctionoftheISandLMcurves.
Answer:B
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AACSB:ReflectiveThinking
3)The________describesthecombinationsofinterestratesandaggregateoutputforwhichthe
quantityofmoneydemandedequalsthequantityofmoneysupplied.
A)IScurve
B)LMcurve
C)consumptionfunction
D)investmentschedule
Answer:B
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AACSB:ReflectiveThinking
4)IntheKeynesianmodelthequantityofmoneydemandedis________relatedtoincomeand
________relatedtotheinterestrate.
A)positively;positively
B)positively;negatively
C)negatively;negatively
D)negatively;positively
Answer:B
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5)Accordingtotheliquiditypreferencetheory,thedemandformoneyis________relatedto
aggregateoutputand________relatedtointerestrates.
A)negatively;negatively
B)negatively;positively
C)positively;negatively
D)positively;positively
Answer:C
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AACSB:ReflectiveThinking
6)Asinterestratesri,theopportunitycostofholdingmoney________andthedemandfor
money________.
A)ris;ris
B)ris;falls
C)falls;ris
D)falls;falls
Answer:B
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AACSB:AnalyticalThinking
7)Asaggregateoutputris,thedemandformoney________andtheinterestrate________,so
thatmoneydemandedequalsmoneysuppliedandthemoneymarketisinequilibrium.
A)increas;ris
B)increas;falls
C)decreas;ris
D)decreas;falls
Answer:A
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AACSB:AnalyticalThinking
8)Everythingelheldconstant,ifaggregateoutputistotherightoftheLMcurve,thenthereis
anexcess________ofmoneywhichwillcautheinterestrateto________.
A)supply;fall
B)supply;ri
C)demand;fall
D)demand;ri
Answer:D
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9)Everythingelheldconstant,ifaggregateoutputistotheleftoftheLMcurve,thenthereis
anexcess________ofmoneywhichwillcautheinterestrateto________.
A)supply;fall
B)supply;ri
C)demand;fall
D)demand;ri
Answer:A
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AACSB:AnalyticalThinking
10)Everythingelheldconstant,ifaggregateoutputistothe________oftheLMcurve,then
thereisanexcesssupplyofmoneywhichwillcautheinterestrateto________.
A)right;fall
B)right;ri
C)left;fall
D)left;ri
Answer:C
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AACSB:AnalyticalThinking
11)Everythingelheldconstant,ifaggregateoutputistothe________oftheLMcurve,then
thereisanexcessdemandofmoneywhichwillcautheinterestrateto________.
A)right;fall
B)right;ri
C)left;fall
D)left;ri
Answer:B
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AACSB:AnalyticalThinking
12)Everythingelheldconstant,ifaggregateoutputistothe________oftheLMcurve,then
thereisanexcess________ofmoneywhichwillcautheinterestratetofall.
A)right;supply
B)right;demand
C)left;supply
D)left;demand
Answer:C
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13)Everythingelheldconstant,ifaggregateoutputistothe________oftheLMcurve,then
thereisanexcess________ofmoneywhichwillcautheinterestratetori.
A)right;supply
B)right;demand
C)left;supply
D)left;demand
Answer:B
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AACSB:AnalyticalThinking
27.2ISLMApproachtoAggregateOutputandInterestRates
1)Macroeconomicequilibriumrequires
A)equilibriuminthegoodsmarket.
B)equilibriuminthemoneymarket.
C)equilibriuminboththegoodsandmoneymarkets.
D)equilibriuminneitherthegoodsnorthemoneymarket.
Answer:C
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AACSB:ReflectiveThinking
2)WhentheISandLMcurvesarecombinedinthesamediagram,theinterctionofthetwo
curvesdeterminestheequilibriumlevelof________aswellasthe________.
A)aggregateoutput;pricelevel
B)aggregateoutput;interestrate
C)moneysupply;pricelevel
D)consumerexpenditures;interestrate
Answer:B
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AACSB:ReflectiveThinking
3)IftheeconomyisontheLMcurve,butistotherightoftheIScurve,aggregateoutputwill
________andtheinterestratewill________.
A)ri;ri
B)ri;fall
C)fall;ri
D)fall;fall
Answer:D
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4)IftheeconomyisontheLMcurve,butistotheleftoftheIScurve,aggregateoutputwill
________andtheinterestratewill________.
A)ri;ri
B)ri;fall
C)fall;ri
D)fall;fall
Answer:A
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AACSB:AnalyticalThinking
5)IftheeconomyisontheIScurve,butistotheleftoftheLMcurve,aggregateoutputwill
________andtheinterestratewill________.
A)ri;ri
B)ri;fall
C)fall;ri
D)fall;fall
Answer:B
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AACSB:AnalyticalThinking
6)IftheeconomyisontheIScurve,butistotherightoftheLMcurve,aggregateoutputwill
________andtheinterestratewill________.
A)ri;ri
B)ri;fall
C)fall;ri
D)fall;fall
Answer:C
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AACSB:AnalyticalThinking
7)IftheeconomyisontheIScurve,butistotheleftoftheLMcurve,thenthe________market
isinequilibrium,buttheinterestrateis________theequilibriumlevel.
A)goods;below
B)goods;above
C)money;below
D)money;above
Answer:B
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8)IftheeconomyisontheLMcurve,butistotherightoftheIScurve,thenthe________
marketisinequilibrium,butaggregate________exceedsaggregate________.
A)goods;output;demand
B)goods;demand;output
C)money;output;demand
D)money;demand;output
Answer:C
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27.3FactorsThatCautheLMCurvetoShift
1)Anincreainthemoneysupply,otherthingqual,shiftsthe________curvetothe
________.
A)IS;right
B)IS;left
C)LM;left
D)LM;right
Answer:D
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AACSB:ReflectiveThinking
2)IftheFederalRerveconductsopenmarketpurchas,themoneysupply________,shifting
theLMcurvetothe________,everythingelheldconstant.
A)decreas;right
B)decreas;left
C)increas;right
D)increas;left
Answer:C
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AACSB:AnalyticalThinking
3)IftheFederalRerveconductsopenmarketsales,themoneysupply________,shiftingthe
LMcurvetothe________,everythingelheldconstant.
A)decreas;right
B)decreas;left
C)increas;right
D)increas;left
Answer:B
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4)IftheFederalRerveconductsopenmarket________,themoneysupply________,shifting
theLMcurvetotheright,everythingelheldconstant.
A)purchas;decreas
B)sales;decreas
C)purchas;increas
D)sales;increas
Answer:C
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AACSB:AnalyticalThinking
5)IftheFederalRerveconductsopenmarket________,themoneysupply________,shifting
theLMcurvetotheleft,everythingelheldconstant.
A)purchas;decreas
B)sales;decreas
C)purchas;increas
D)sales;increas
Answer:B
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AACSB:AnalyticalThinking
6)Anincreainthequantityofmoneysuppliedshiftsthemoneysupplycurvetothe________,
andtheequilibriuminterestrate________,everythingelheldconstant.
A)right;falls
B)right;ris
C)left;falls
D)left;ris
Answer:A
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AACSB:AnalyticalThinking
7)Adecreainthequantityofmoneysuppliedshiftsthemoneysupplycurvetothe________,
andtheequilibriuminterestrate________,everythingelheldconstant.
A)right;falls
B)right;ris
C)left;falls
D)left;ris
Answer:D
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8)Anincreainthequantityofmoneysuppliedshiftsthemoneysupplycurvetothe________
andtheLMcurvetothe________,everythingelheldconstant.
A)right;left
B)right;right
C)left;left
D)left;right
Answer:B
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AACSB:AnalyticalThinking
9)Adecreainthequantityofmoneysuppliedshiftsthemoneysupplycurvetothe________,
andtheLMcurvetothe________,everythingelheldconstant.
A)right;left
B)right;right
C)left;left
D)left;right
Answer:C
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AACSB:AnalyticalThinking
10)Adeclineinthemoney________shiftstheLMcurvetothe________,causingtheinterest
ratetoriandoutputtofall,everythingelheldconstant.
A)demand;right
B)demand;left
C)supply;right
D)supply;left
Answer:D
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AACSB:AnalyticalThinking
11)AdeclineinthemoneysupplyshiftstheLMcurvetotheleft,causingtheinterestrateto
________andoutputto________,everythingelheldconstant.
A)ri;ri
B)ri;fall
C)fall;ri
D)fall;fall
Answer:B
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12)Anincreainthemoney________shiftstheLMcurvetothe________,causingthe
interestratetofallandoutputtori,everythingelheldconstant.
A)demand;right
B)demand;left
C)supply;right
D)supply;left
Answer:C
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AACSB:AnalyticalThinking
13)AnincreainthemoneysupplyshiftstheLMcurvetotheright,causingtheinterestrateto
________andoutputto________,everythingelheldconstant.
A)ri;ri
B)ri;fall
C)fall;ri
D)fall;fall
Answer:C
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AACSB:AnalyticalThinking
14)Whenthecentralbank________themoneysupply,theLMcurveshiftstotheright,interest
rates________,andequilibriumaggregateoutput________,everythingelheldconstant.
A)increas;fall;increas
B)increas;ri;decreas
C)decreas;ri;decreas
D)decreas;fall;increas
Answer:A
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AACSB:AnalyticalThinking
15)Anautonomousdecreainmoneydemand,otherthingqual,shiftsthe________curveto
the________.
A)IS;right
B)IS;left
C)LM;left
D)LM;right
Answer:D
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16)Anautonomousincreainmoneydemand,otherthingqual,shiftsthe________curveto
the________.
A)IS;right
B)IS;left
C)LM;left
D)LM;right
Answer:C
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AACSB:AnalyticalThinking
17)Asbondsbecomeariskierast,thedemandformoney________and,allelconstant,the
equilibriuminterestrate________.
A)ris;ris
B)ris;falls
C)falls;ris
D)falls;falls
Answer:A
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AACSB:AnalyticalThinking
18)Anautonomousriin________shiftstheLMcurvetothe________,everythingelheld
constant.
A)netexports;right
B)netexports;left
C)moneydemand;right
D)moneydemand;left
Answer:D
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27.4ChangesinEquilibriumLeveloftheInterestRateandAggregateOutput
1)IntheISLMframework,anexpansionarymonetarypolicycausaggregateoutputto
________andtheinterestrateto________,everythingelheldconstant.
A)increa;increa
B)increa;decrea
C)decrea;decrea
D)decrea;increa
Answer:B
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AACSB:AnalyticalThinking
2)AnexpansionarymonetarypolicyshiftstheLMcurvetothe________,reducing________,
everythingelheldconstant.
A)left;outputandincreasinginterestrates
B)left;bothrealoutputandinterestrates
C)right;bothinterestratesandrealoutput
D)right;interestratesandincreasingrealoutput
Answer:D
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AACSB:ReflectiveThinking
3)Everythingelheldconstant,amonetaryexpansionischaracterizedby________outputand
________interestrates.
A)rising;rising
B)rising;falling
C)falling;rising
D)falling;falling
Answer:B
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AACSB:ReflectiveThinking
4)AcontractionarymonetarypolicyshiftstheLMcurvetothe________,reducing________,
everythingelheldconstant.
A)left;outputandincreasinginterestrates
B)left;bothrealoutputandinterestrates
C)right;bothinterestratesandrealoutput
D)right;interestratesandincreasingrealoutput
Answer:A
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5)Everythingelheldconstant,amonetarycontractionischaracterizedby________output
and________interestrates.
A)rising;rising
B)rising;falling
C)falling;rising
D)falling;falling
Answer:C
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AACSB:AnalyticalThinking
6)Inthemoneymarket,aconditionofexcessdemandformoneycanbeeliminatedbya
________inaggregateoutputora________intheinterestrate,everythingelheldconstant.
A)ri;ri
B)ri;fall
C)fall;ri
D)fall;fall
Answer:C
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AACSB:AnalyticalThinking
7)Inthemoneymarket,aconditionofexcesssupplyofmoneycanbeeliminatedbya________
inaggregateoutputora________intheinterestrate,everythingelheldconstant.
A)ri;ri
B)ri;fall
C)fall;ri
D)fall;fall
Answer:B
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AACSB:AnalyticalThinking
8)IntheISLMframework,anexpansionaryfiscalpolicycausaggregateoutputto________
andtheinterestrateto________,everythingelheldconstant.
A)increa;increa
B)increa;decrea
C)decrea;decrea
D)decrea;increa
Answer:A
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9)IntheISLMframeworkacontractionaryfiscalpolicycausaggregateoutputto________
andtheinterestrateto________,everythingelheldconstant.
A)increa;increa
B)increa;decrea
C)decrea;decrea
D)decrea;increa
Answer:C
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AACSB:AnalyticalThinking
10)Everythingelheldconstant,anexpansionary________policywillcautheinterestrate
tori,whileanexpansionary________policywillcautheinterestratetofall.
A)monetary;monetary
B)monetary;fiscal
C)fiscal;monetary
D)fiscal;fiscal
Answer:C
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AACSB:ReflectiveThinking
11)Aggregateoutputandtheinterestrateare________relatedtogovernmentspendingandare
________relatedtotaxes.
A)positively;positively
B)positively;negatively
C)negatively;positively
D)negatively;negatively
Answer:B
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AACSB:ReflectiveThinking
12)Anincreainspendingthatresultsfromexpansionary________policycaustheinterest
rateto________,everythingelheldconstant.
A)fiscal;ri
B)fiscal;fall
C)incomes;ri
D)incomes;fall
Answer:A
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13)Despiteanexpansionarymonetarypolicy,hing
elheldconstant,therecessioncouldoccurinspiteoftherightwardshiftoftheLMcurveif
A)consumerconfidencedecreassharply.
B)thereisaninvestmentboom.
C)themoneysupplyincreas.
D)taxesarecut.
Answer:A
QuesStatus:PreviousEdition
AACSB:ReflectiveThinking
14)Ifaneconomyexperienceshighinterestratesandhighunemployment,theISLMframework
predictsthat________policyhasbeentoo________.
A)fiscal;expansionary
B)fiscal;contractionary
C)monetary;expansionary
D)monetary;contractionary
Answer:D
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AACSB:AnalyticalThinking
15)WhichofthefollowingstatementsconcerningKeynesianISLManalysisisTRUE?
A)Foragivenchangeintaxes,theIScurvewillshiftlessthanforanequalchangein
governmentspending.
B)ChangesinnetexportsarisingfromachangeininterestratescausashiftintheIScurve.
C)AfallinthemoneysupplyshiftstheLMcurvetotheright.
D)Expansionaryfiscalpolicywillcautheinterestratetofall.
Answer:A
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AACSB:ReflectiveThinking
16)ReferringtotheEconomicStimulusActof2008,theexpansionaryeffectofthegovernment
stimuluswasoverwhelmedbythecontinuingdeteriorationincreditmarketconditions.
EverythingelheldconstantandusingtheISLMmodel,theneteffectwouldcauthe
________curveto________andoutputwill________.
A)IS;shiftleft;decrea
B)IS;shiftright;increa
C)LM;shiftright;increa
D)LM;shiftleft;decrea
Answer:A
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17)UsingtheISLMmodel,explaintheeffectsofamonetaryexpansioncombinedwithafiscal
heequilibriumlevelofoutputandinterestratechange?
Answer:ThemonetaryexpansionshiftstheLMcurvetotherightwhichbyitlfwouldcau
calcontractionshiftstheIS
curvetotheleftwhichbyitlfwouldcautheinterestratetodecreaandaggregateoutputto
ore,theequilibriuminterestrateunambiguouslyfalls,whiletheeffectonoutput
isindeterminate.
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AACSB:ReflectiveThinking
18)UsingtheISLMmodel,showgraphicallyandexplaintheeffectsofamonetarycontraction.
Whatistheeffectontheequilibriuminterestrateandlevelofoutput?
Answer:Seefigurebelow.
ultisthattheequilibriumlevel
ofoutputfallsandtheequilibriuminterestrateincreas.
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27.5EffectivenessOfMonetaryVersusFiscalPolicy
1)Ifthequantityofmoneydemandedisnotaffectedbychangesintheinterestrate,theLM
curveis________andfiscalpolicywillbe________.
A)horizontal;veryeffective
B)horizontal;ineffective
C)vertical;ineffective
D)vertical;veryeffective
Answer:C
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AACSB:ReflectiveThinking
2)TheLMcurvewillbeverticalandfiscalpolicyineffectivewhen
A)thedemandformoneyisunaffectedbychangesintheinterestrate.
B)thedemandformoneyisunaffectedbychangesinincome.
C)investmentisunaffectedbychangesintheinterestrate.
D)investmentisunaffectedbychangesinincome.
Answer:A
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AACSB:ReflectiveThinking
3)Thesituationinwhichexpansionaryfiscalpolicydoesnotleadtoariinaggregateoutputis
referredtoas
A)fiscalneutrality.
B)arecession.
C)completecrowdingout.
D)inflation.
Answer:C
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AACSB:ReflectiveThinking
4)Crowdingoutwillbemorepronouncedtheclortoverticalisthe
A)IScurve.
B)LMcurve.
C)consumptionfunction.
D)aggregatedemandfunction.
Answer:B
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5)Thelessinterest-nsitiveismoneydemand,the
A)moreeffectiveisfiscalpolicyrelativetomonetarypolicy.
B)moreeffectiveismonetarypolicyrelativetofiscalpolicy.
C)steeperistheIScurve.
D)flatteristheLMcurve.
Answer:B
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AACSB:ReflectiveThinking
6)Themoreinterest-nsitiveismoneydemand,the
A)moreeffectiveisfiscalpolicyrelativetomonetarypolicy.
B)moreeffectiveismonetarypolicyrelativetofiscalpolicy.
C)steeperistheIScurve.
D)steeperistheLMcurve.
Answer:A
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AACSB:ReflectiveThinking
7)IftheeconomyischaracterizedbyacertainandstableLMcurve,then________target
produces________fluctuationsinaggregateoutput.
A)aninterestrate;smaller
B)amoneysupply;smaller
C)amoneysupply;larger
D)anexchangerate;larger
Answer:B
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AACSB:ReflectiveThinking
8)IftheeconomyischaracterizedbyastableIScurveandanunstableLMcurve,then________
targetproduces________fluctuationsinaggregateoutput.
A)aninterestrate;larger
B)amoneysupply;smaller
C)amoneysupply;larger
D)anexchangerate;smaller
Answer:C
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AACSB:ReflectiveThinking
9)Ifthe________curveisrelativelymoreunstablethanthe________curve,amoneysupply
targetispreferred.
A)IS;IS
B)IS;LM
C)LM;IS
D)LM;LM
Answer:B
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10)Ifthe________curveisrelativelymoreunstablethanthe________curve,aninterestrate
targetispreferred.
A)IS;IS
B)IS;LM
C)LM;IS
D)LM;LM
Answer:C
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AACSB:ReflectiveThinking
11)IftheFedadoptsapolicyofpeggingtheinterestrate,a________ingovernmentspending
forcestheFedtoincreathemoneysupplytopreventinterestratesfrom________.
A)fall;increasing
B)fall;decreasing
C)ri;decreasing
D)ri;increasing
Answer:D
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12)UsingtheISLMmodel,explainandshowgraphicallytheeffectofafiscalexpansionwhen
thethiffect
called?
Answer:Seefigurebelow.
urveisvertical,soanyshiftoftheIScurveaffects
calexpansionshiftstheIScurve
rightward,increasingtheinterestrate.
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13)Showgraphicallyandexplainwhytargetinganinterestrateispreferablewhenmoney
demandisunstableandtheIScurveisstable.
Answer:Seefigurebelow.
UnstablemoneydemandcaustheLMcurvetoshiftbetweenLM'andLM".Ifthemoney
supplyistargeted,outputfluctuatesbetweenY'andY".Withaninterestratetarget,output
heobjectiveistominimizeoutputfluctuations,targetingtheinterest
rateispreferable.
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27.6ISLMModelInTheLongRun
1)Therateofoutputatwhichthepricelevelhasnotendencytoriorfalliscalledthe
A)naturalrateofoutput.
B)potentiallevelofincome.
C)blisspoint.
D)efficientlevelofoutput.
Answer:A
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AACSB:ReflectiveThinking
2)Inthelong-runISLMmodelandwitheverythingelheldconstant,aslongasthelevelof
output________thenaturalratelevel,thepricelevelwillcontinueto________,shiftingtheLM
curvetothe________,untilfinallyoutputisbackatthenaturalratelevel.
A)exceeds;ri;right
B)exceeds;ri;left
C)remainsbelow;fall;left
D)remainsbelow;ri;right
Answer:B
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AACSB:AnalyticalThinking
3)Inthelong-runISLMmodelandwitheverythingelheldconstant,aslongasthelevelof
output________thenaturalratelevel,thepricelevelwillcontinueto________,shiftingtheLM
curvetothe________,untilfinallyoutputisbackatthenaturalratelevel.
A)exceeds;ri;right
B)exceeds;fall;left
C)remainsbelow;fall;right
D)remainsbelow;ri;left
Answer:C
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AACSB:AnalyticalThinking
4)Inthelong-runISLMmodelandwitheverythingelheldconstant,anincreainthemoney
supplyleavesthelevelofoutputandinterestratesunchanged,anoutcomecalled
A)interestrateovershooting.
B)long-runmoneyneutrality.
C)long-runcrowdingout.
D)thelong-runPhillipscurve.
Answer:B
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5)Inthelong-runISLMmodelandwitheverythingelheldconstant,thelong-runeffectofan
expansionarymonetarypolicyisto
A)increarealoutputandtheinterestrate.
B)notchangeeitherrealoutputortheinterestrate.
C)increarealoutputandleavetheinterestrateunchanged.
D)increatheinterestrateandleaverealoutputunchanged.
Answer:B
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AACSB:ReflectiveThinking
6)Thelong-runneutralityofmoneyreferstothefactthatinthelongrun,monetarypolicy
A)changesonlyrealoutput.
B)changesonlytherealinterestrate.
C)changesbothrealoutputandtherealinterestrate.
D)hasnoeffectoneitherrealoutputortherealinterestrate.
Answer:D
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AACSB:ReflectiveThinking
7)Inthelong-runISLMmodelandwitheverythingelheldconstant,thelong-runeffectofan
expansionaryfiscalpolicyisto________realoutputand________theinterestrate.
A)increa;increa
B)notchange;notchange
C)increa;notchange
D)notchange;increa
Answer:D
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AACSB:ReflectiveThinking
8)Inthelong-runISLMmodelandwitheverythingelheldconstant,thelong-runeffectofa
contractionaryfiscalpolicyisto________realoutputand________theinterestrate.
A)notchange;notchange
B)decrea;decrea
C)decrea;notchange
D)notchange;decrea
Answer:D
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Copyright©2019PearsonEducation,Inc.
9)Inthelong-runISLMmodelandwitheverythingelheldconstant,thelong-runeffectofa
cutingovernmentspendingisto________realoutputand________theinterestrate.
A)increa;increa
B)increa;notchange
C)notchange;increa
D)notchange;decrea
Answer:D
QuesStatus:PreviousEdition
AACSB:ReflectiveThinking
10)Inthelong-runISLMmodelandwitheverythingelheldconstant,thelong-runeffectofa
taxcutisto________realoutputand________theinterestrate.
A)increa;increa
B)increa;notchange
C)notchange;increa
D)notchange;decrea
Answer:C
QuesStatus:PreviousEdition
AACSB:ReflectiveThinking
11)Inthelong-runISLMmodelandwitheverythingelheldconstant,thelong-runeffectofan
autonomousincreaininvestmentisto________realoutputand________theinterestrate.
A)increa;increa
B)increa;notchange
C)notchange;increa
D)notchange;decrea
Answer:C
QuesStatus:PreviousEdition
AACSB:ReflectiveThinking
12)Inthelong-runISLMmodelandwitheverythingelheldconstant,thelong-runeffectofa
fallinnetexportsisto________realoutputand________theinterestrate.
A)increa;increa
B)increa;notchange
C)notchange;increa
D)notchange;decrea
Answer:D
QuesStatus:PreviousEdition
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Copyright©2019PearsonEducation,Inc.
13)Inthelong-runISLMmodelandwitheverythingelheldconstant,thelong-runeffectofan
autonomousfallinconsumptionexpenditureisto________realoutputand________the
interestrate.
A)increa;increa
B)increa;notchange
C)notchange;increa
D)notchange;decrea
Answer:D
QuesStatus:PreviousEdition
AACSB:ReflectiveThinking
14)Inthelong-runtheISLMmodelpredictsthat________canchangerealoutput.
A)onlymonetarypolicy
B)onlyfiscalpolicy
C)bothmonetaryandfiscalpolicy
D)neithermonetarynorfiscalpolicy
Answer:D
QuesStatus:PreviousEdition
AACSB:ReflectiveThinking
15)Ifthepricelevelincreas,everythingelheldconstant,the________curveshiftstothe
________.
A)IS;right
B)IS;left
C)LM;left
D)LM;right
Answer:C
QuesStatus:PreviousEdition
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Copyright©2019PearsonEducation,Inc.
16)Usingthelong-runISLMmodel,explainanddemonstrategraphicallytheneutralityof
money,forthecaofanincreainthemoneysupply.
Answer:Seefigurebelow.
TheincreainthemoneysupplyshiftsLMtotheright,increasingoutputtoY',abovethe
naturalrateY*.Theinterestratefallsfromitoi'.Excessdemandincreasthepricelevel,
urveshiftsbackuntiltheallpressureon
tialandfinallevelsof
variableshavechanged.
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Copyright©2019PearsonEducation,Inc.
27.7Appendix:AlgebraoftheISLMModel
1)Inthebasicclod-economyISLMmodel,thegoodsmarketcanbedescribedbythe
A)consumptionfunction.
B)investmentfunction.
C)governmentspendingandtax.
D)goodsmarketequilibriumcondition.
E)alloftheabove.
Answer:E
QuesStatus:PreviousEdition
AACSB:ApplicationofKnowledge
2)Inthebasicclod-economyISLMmodel,themoneymarketcanbedescribedbythe
A)moneydemandfunction.
B)moneysupply.
C)moneymarketequilibriumcondition.
D)alloftheabove.
Answer:D
QuesStatus:PreviousEdition
AACSB:ApplicationofKnowledge
3)WhichofthefollowingsdoesNOTdescribethegoodsmarketintheISLMmodel?
A)consumptionfunction
B)investmentfunction
C)governmentspendingandtax
D)moneydemandfunction
Answer:D
QuesStatus:PreviousEdition
AACSB:ApplicationofKnowledge
4)WhichofthefollowingsdoesNOTdescribethegoodsmarketintheISLMmodel?
A)consumptionfunction
B)investmentfunction
C)governmentspendingandtax
D)moneysupply
Answer:D
QuesStatus:PreviousEdition
AACSB:ApplicationofKnowledge
5)WhichofthefollowingsdoesNOTdescribethemoneymarketintheISLMmodel?
A)moneydemandfunction
B)investmentfunction
C)moneymarketequilibriumcondition
D)moneysupply
Answer:B
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Copyright©2019PearsonEducation,Inc.
6)Inthebasicclod-economyISLMmodel,thegoodsmarketequilibriumconditionis
A)output=consumption+investment+governmentspending.
B)output=consumption+investment+governmentspending-tax.
C)output=consumption+investment+governmentspending+netexport.
D)output=potentialoutput.
Answer:A
QuesStatus:PreviousEdition
AACSB:ApplicationofKnowledge
7)Inthebasicclod-economyISLMmodel,themoneydemandisafunctionof
A)output.
B)moneysupply.
C)interestrates.
D)bothAandC.
Answer:D
QuesStatus:PreviousEdition
AACSB:ApplicationofKnowledge
8)Inthebasicclod-economyISLMmodel,theIScurvecanbedescribedbyanequationwhere
A)outputisafunctionofconsumption.
B)moneyisafunctionofinterestrates.
C)outputisafunctionofmoney.
D)outputisafunctionofinterestrates.
Answer:D
QuesStatus:PreviousEdition
AACSB:AnalyticalThinking
9)Inthebasicclod-economyISLMmodel,theLMcurvecanbedescribedbyanequation
where
A)outputisafunctionofconsumption.
B)moneyisafunctionofinterestrates.
C)outputisafunctionofmoney.
D)interestrateisafunctionofoutput.
Answer:D
QuesStatus:PreviousEdition
AACSB:AnalyticalThinking
10)Inthebasicclod-economyISLMmodel,astheinterestnsitivityofmoneydemand
increas,fiscalpolicyhas________effectonoutputandmonetarypolicyhas________effect
onoutput.
A)less;less
B)more;more
C)more;less
D)less;more
Answer:C
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Copyright©2019PearsonEducation,Inc.
11)Inthebasicclod-economyISLMmodel,astheinterestnsitivityofinvestmentspending
increas,fiscalpolicyhas________effectonoutputandmonetarypolicyhas________effect
onoutput.
A)less;less
B)more;more
C)more;less
D)less;more
Answer:D
QuesStatus:PreviousEdition
AACSB:AnalyticalThinking
12)Intheopen-economyISLMmodel,thegoodsmarketequilibriumconditionis
A)output=consumption+investment+governmentspending.
B)output=consumption+investment+governmentspending-tax.
C)output=consumption+investment+governmentspending+netexport.
D)output=potentialoutput.
Answer:C
QuesStatus:PreviousEdition
AACSB:ApplicationofKnowledge
13)Intheopen-economyISLMmodel,netexportisspecifiedasafunctionof________and
exchangerateisspecifiedasafunctionof________.
A)output;output
B)moneysupply;interestrate
C)exchangerate;interestrate
D)exchangerate;moneydemand
Answer:C
QuesStatus:PreviousEdition
AACSB:ApplicationofKnowledge
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