1. The IS curve represents A. the single level of output where the goods market is in equilibrium B. the single level of output where financial markets are in equilibrium. C. the combinations of output and the interest rate where the money market is in equilibriu m. Q the combinations of output and the interest rate where the goods market is in equilibriu m.
1. The IS curve represents A. the single level of output where the goods market is in equilibrium B. the single level of output where financial markets are in equilibrium. C. the combinations of output and the interest rate where the money market is in equilibriu m. Q the combinations of output and the interest rate where the goods market is in equilibriu m.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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SESSION A: CHOOSE THE BEST ANSWER
1. The IS curve represents
A. the single level of output where the goods market is in equilibrium.
B. the single level of output where financial markets are in equilibrium.
C. the combinations of output and the interest rate where the money market is in equilibriu
m
D. the combinations of output and the interest rate where the goods market is in equilibriu
m.
2. The IS curve will shift to the right when which of the following occurs?
A. an increase in the money supply
B. an increase in government spending
C. a reduction in the interest rate
D all of the above.
3. Which of the following occurs as the economy moves leftward along a given IS curve?
A. an increase in the interest rate causes investment spending to decrease
B. an increase in the interest rate causes money demand to increase
C. an increase in the interest rate causes a reduction in the money supply
D. a reduction in government spending causes a reduction in demand for goods
4. Which of the following statements is consistent with a given (ie., fixed) LM curve?
A. a reduction in the interest rate causes investment spending to increase
B. a reduction in the interest rate causes money demand to decrease
C. an increase in output causes money demand to increase
D. an increase in output causes an increase in demand for good
5. Suppose the economy is currently operating on both the LM curve and the IS curve. Whic
h of the following is true for this economy?
A. Production equals demand.
B. The money supply equals money demand.
C. Financial markets are in equilibrium.
D. all of the above
6. In H1 2020, the Bank of Zambia pursued expansionary monetary policy. Which of the foll
owing will occur as a result of this monetary policy action?
A. the LM curve shifts down.
B. the LM curve shifts up.
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4. Which of the following statements is consistent with a given (i.e., fixed) LM curve?
A. a reduction in the interest rate causes investment spending to increase
B. a reduction in the interest rate causes money demand to decrease
C. an increase in output causes money demand to increase
D.
an increase in output causes an increase in demand for good
5. Suppose the economy is currently operating on both the LM curve and the IS curve. Whic
hof the following is true for this economy?
A. Production equals demand.
B. The money supply equals money demand.
C. Financial markets are in equilibrium.
D. all of the above
6. In H1 2020, the Bank of Zambia pursued expansionary monetary policy. Which of the foll
owing will occur as a result of this monetary policy action?
A. the LM curve shifts down.
B. the LM curve shifts up.
C. the IS curve shifts rightward as the interest rate falls.
D. the IS curve shifts leftward as the interest rate increases.
7. Suppose the Minister of Finance announces measures aimed at fiscal consolidation. Bas
ed on the ISLM model, we know with certainty that the following will occur as a result of
this fiscal policy action.
A. investment spending will decrease.
B. investment spending will increase.
C. there will be no change in investment spending
D. investment spending may increase, decrease, or not change.
8. Suppose there is a simultaneous fiscal expansion and monetary contraction. We know w
ith certainty that
A. output will increase.
B. output will decrease.
C. the interest rate will increase.
D. the interest rate will decrease.
9. Consider a very small open economy with a fixed exchange rate and in which there is per
fect international capital mobility. Starting from equilibrium in the goods and money mar
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