MCQ 65 Part 2

1.In an open economy, aggregate demand is the sum of

A) consumer expenditure, actual investment spending, and government spending.

B) consumer expenditure, planned investment spending, and government spending.

C) consumer expenditure, actual investment spending, government spending, and net exports.

D) consumer expenditure, planned investmejnt spending, government spending, and net exports.✔

2.If net exports increase by 100 and the mpc is 0.75, equilibrium aggregate output increases by

A) 100.

B) 250.

C) 400.✔

D) 750.

3.If net exports increase by 250 and the mpc is 0.75, equilibrium aggregate output increases by

A) 250.

B) 500.

C) 750.

D) 1000.✔

4.If net exports decrease by 250 and the mpc is 0.75, equilibrium aggregate output

A) increases by 1000.

B) increases by 750.

C) decreases by 750.

D) decreases by 1000.✔

5.Aggregate output is ________ related to autonomous consumer expenditure, and is ________ related to planned investment spending.

A) negatively; negatively

B) negatively; positively

C) positively; negatively

D) positively; positively

6.Aggregate output is ________ related to autonomous consumer expenditure, and is ________ related to the level of taxes.

A) negatively; negatively

B) negatively; positively

C) positively; negatively

D) positively; positively

7.Aggregate output is increased by a decrease in

A) autonomous consumption.

B) government spending.

C) planned investment.

D) net taxes.

8.Equilibrium output is reduced by an increase in

A) planned investment.

B) taxes.✔

C) government spending.

D) net exports.

9.If the interest rate falls, other things being equal, investment spending will

A) fall.

B) rise.✔

C) either rise, fall, or remain unchanged.

D) not be affected.

10 When the interest rate rises

A) planned investment falls.✔

B) planned investment rises.

C) planned investment will be unaffected.

D) equilibrium income increases.

11..When the interest rate is ________, ________ investments in physical capital will earn more than the cost of borrowed funds, so planned investment spending is ________.

A) high; few; high

B) high; few; low✔

C) low; few; high

D) low; many; low

12.When interest rates rise in the United States (with the price level fixed), the value of the dollar ________, domestic goods become ________ expensive, and net exports ________.

A) falls; less; fall

B) falls; more; rise

C) rises; more; fall✔

D) rises; less; fall

13.When interest rates fall in the United States (with the price level fixed), the value of the dollar ________, domestic goods become ________ expensive, and net exports ________.

A) falls; less; fall

B) falls; less; rise✔

C) falls; more; fall

D) rises; less; fall

14.An increase in interest rates

A) increases the value of the dollar, net exports, and equilibrium output.

B) increases the value of the dollar, reducing net exports and equilibrium output.✔

C) reduces the value of the dollar, net exports, and equilibrium output.

D) reduces the value of the dollar, increasing net exports and equilibrium output.

15.A decrease in interest rates

A) increases the value of the dollar, net exports, and equilibrium output.

B) increases the value of the dollar, reducing net exports and equilibrium output.

C) reduces the value of the dollar, net exports, and equilibrium output.

D) reduces the value of the dollar, increasing net exports and equilibrium output.✔

16.The negative relation between investment spending and the interest rate is what gives the ________ curve its ________ slope.

A) IS; upward

B) IS; downward✔

C) LM; downward

D) LM; upward

17.Points on the IS curve satisfy ________ market equilibrium.

A) money

B) goods✔

C) stock

D) bond

18.The ________ traces out the points for which total quantity of goods produced equals total quantity of goods demanded.

A) LM curve

B) IS curve✔

C) consumption function

D) investment schedule

19.The ________ describes points for which the goods market is in equilibrium.

A) LM curve

B) IS curve✔

C) consumption function

D) investment schedule

20.Everything else held constant, if aggregate output is to the right of the IS curve, then there is an excess ________ of goods which will cause aggregate output to ________.

A) supply; fall✔

B) supply; rise

C) demand; fall

D) demand; rise

21.Everything else held constant, if aggregate output is to the left of the IS curve, then there is an excess ________ of goods which will cause aggregate output to ________.

A) supply; fall

B) supply; rise

C) demand; fall

D) demand; rise✔

22.Everything else held constant, if aggregate output is to the ________ of the IS curve, then there is an excess supply of goods which will cause aggregate output to ________.

A) right; fall✔

B) right; rise

C) left; fall

D) left; rise

23.Everything else held constant, if aggregate output is to the ________ of the IS curve, then there is an excess demand of goods which will cause aggregate output to ________.

A) right; fall

B) right; rise

C) left; fall

D) left; rise✔

24.Everything else held constant, if aggregate output is to the ________ of the IS curve, then there is an excess ________ of goods which will cause aggregate output to fall.

A) right; supply✔

B) right; demand

C) left; supply

D) left; demand

25.Everything else held constant, if aggregate output is to the ________ of the IS curve, then there is an excess demand of goods which will cause aggregate output to ________.

A) right; fall

B) right; rise

C) left; fall

D) left; rise✔

26.Everything else held constant, if aggregate output is to the ________ of the IS curve, then there is an excess ________ of goods which will cause aggregate output to fall.

A) right; supply✔

B) right; demand

C) left; supply

D) left; demand

27.Everything else held constant, if aggregate output is to the ________ of the IS curve, then there is an excess ________ of goods which will cause aggregate output to rise.

A) right; supply

B) right; demand

C) left; supply

D) left; demand✔

28.Other things equal, a decrease in autonomous consumption shifts the ________ curve to the ________.

A) IS; right

B) IS; left✔

C) LM; left

D) LM; right

29.In the Keynesian cross diagram, a decline in autonomous consumer expenditure causes the aggregate demand function to shift ________ and the equilibrium level of aggregate output to ________, everything else held constant.

A) up; rise

B) up; fall

C) down; rise

D) down; fall✔

30.In the Keynesian cross diagram, an increase in autonomous consumer expenditure causes the aggregate demand function to shift ________ and the equilibrium level of aggregate output to ________, everything else held constant.

A) up; rise✔

B) up; fall

C) down; rise

D) down; fall

31.In the Keynesian cross diagram, an increase in autonomous consumer expenditure causes the aggregate demand function to shift ________, the equilibrium level of aggregate output to rise, and the IS curve to shift to the ________, everything else held constant.

A) up; left

B) up; right✔

C) down; left

D) down; right

32.In the Keynesian cross diagram, a decline in autonomous consumer expenditure causes the aggregate demand function to shift ________, the equilibrium level of aggregate output to fall, and the IS curve to shift to the ________, everything else held constant.

A) up; left

B) up; right

C) down; left✔

D) down; right

33.In the Keynesian cross diagram, a decline in autonomous consumer expenditure causes the aggregate demand function to shift down, the equilibrium level of aggregate output to ________, and the IS curve to shift to the ________, everything else held constant.

A) rise; left

B) rise; right

C) fall; left✔

D) fall; right

34.In the Keynesian cross diagram, an increase in autonomous consumer expenditure causes the aggregate demand function to shift up, the equilibrium level of aggregate output to ________, and the IS curve to shift to the ________, everything else held constant.

A) rise; left

B) rise; right✔

C) fall; left

D) fall; right

Answer: B

35.An increase in autonomous consumer expenditure causes the equilibrium level of aggregate output to ________ at any given interest rate and shifts the ________ curve to the ________, everything else held constant.

A) rise; LM; right

B) rise; IS; right✔

C) fall; LM; left

D) fall; IS; left

36.A decrease in autonomous consumer expenditure causes the equilibrium level of aggregate output to ________ at any given interest rate and shifts the ________ curve to the ________, everything else held constant.

A) rise; LM; right

B) rise; IS; right

C) fall; IS; left✔

D) fall; LM; left

37.Everything else held constant, changes in the interest rate affect planned investment spending and hence the equilibrium level of output, but this change in investment spending

A) merely causes a movement along the IS curve and not a shift.✔

B) is crowded out by higher taxes.

C) is crowded out by higher government spending.

D) is crowded out by lower consumer expenditures.

38.A rise in autonomous planned investment spending causes the equilibrium level of aggregate output to ________ and shifts the ________ curve to the ________, everything else held constant.

A) rise; LM; right

B) rise; IS; right✔

C) fall; IS; left

D) fall; LM; left

39.A decline in autonomous planned investment spending causes the equilibrium level of aggregate output to ________ and shifts the ________ curve to the ________, everything else held constant.

A) rise; LM; right

B) rise; IS; right

C) fall; IS; left✔

D) fall; LM; left

40.In the Keynesian cross diagram, a decrease in investment spending because companies become more pessimistic about investment profitability causes the aggregate demand function to shift ________ and the equilibrium level of aggregate output to ________, everything else held constant.

A) up; rise

B) up; fall

C) down; rise

D) down; fall✔

41.In the Keynesian cross diagram, an increase in investment spending because companies become more optimistic about investment profitability causes the aggregate demand function to shift ________ and the equilibrium level of aggregate output to ________, everything else held constant.

A) up; rise✔

B) up; fall

C) down; rise

D) down; fall

42.In the Keynesian cross diagram, an increase in investment spending because companies become more optimistic about investment profitability causes the aggregate demand function to shift ________, the equilibrium level of aggregate output to rise, and the IS curve to shift to the ________, everything else held constant.

A) up; left

B) up; right✔

C) down; left

D) down; right

43.In the Keynesian cross diagram, a decrease in investment spending because companies become more pessimistic about investment profitability causes the aggregate demand function to shift ________, the equilibrium level of aggregate output to fall, and the IS curve to shift to the ________, everything else held constant.

A) up; left

B) up; right

C) down; left✔

D) down; right

44.In the Keynesian cross diagram, a decrease in investment spending because companies become more pessimistic about investment profitability causes the aggregate demand function to shift down, the equilibrium level of aggregate output to ________, and the IS curve to shift to the ________, everything else held constant.

A) rise; left

B) rise; right

C) fall; left✔

D) fall; right

45.In the Keynesian cross diagram, an increase in investment spending because companies become more optimistic about investment profitability causes the aggregate demand function to shift up, the equilibrium level of aggregate output to ________, and the IS curve to shift to the ________, everything else held constant.

A) rise; left

B) rise; right✔

C) fall; left

D) fall; right

46.A decrease in autonomous planned investment spending, other things equal, shifts the ________ curve to the ________.

A) IS; right

B) IS; left✔

C) LM; left

D) LM; right

47.An increase in government spending causes the equilibrium level of aggregate output to ________ at any given interest rate and shifts the ________ curve to the ________, everything else held constant.

A) rise; LM; right

B) rise; IS; right✔

C) fall; IS; left

D) fall; LM; left

48.A reduction in government spending causes the equilibrium level of aggregate output to ________ at any given interest rate and shifts the ________ curve to the ________, everything else held constant.

A) rise; LM; right

B) fall; IS; left✔

C) fall; LM; left

D) rise; IS; right

49.The IS curve shifts to the left when

A) taxes increase.✔

B) government spending increases.

C) the money supply increases.

D) autonomous planned investment spending increases.

50.A decline in taxes ________ consumer expenditure and shifts the ________ curve to the ________, everything else held constant.

A) raises; LM; right

B) lowers; IS; left

C) raises; IS; right✔

D) lowers; LM; left

51.A tax increase ________ disposable income, ________ consumption expenditure, and shifts the IS curve to the ________, everything else held constant.

A) increases; increases; right

B) increases; decreases; left

C) decreases; increases; left

D) decreases; decreases; left✔

52.A tax cut ________ disposable income, ________ consumption expenditure, and shifts the IS curve to the ________, everything else held constant.

A) increases; increases; right✔

B) increases; decreases; right

C) decreases; increases; left

D) decreases; decreases; left

53.If American college students decide that drinking Mexican-brewed beer helps one get noticed, net exports will tend to fall, causing aggregate demand to ________ and the ________ curve to shift to the left, everything else held constant.

A) fall; LM

B) fall; IS✔

C) rise; LM

D) rise; IS

54.If young business professionals in America suddenly decide that driving German-made cars is an important status symbol, net exports will tend to ________ causing aggregate demand to ________, everything else held constant.

A) fall; fall✔

B) fall; rise

C) rise; fall

D) rise; rise

55.An autonomous depreciation of the U.S. dollar makes American goods ________ relative to foreign goods and results in a ________ in U.S. net exports, everything else held constant.

A) cheaper; decline

B) cheaper; rise✔

C) more expensive; decline

D) more expensive; rise

56.An autonomous appreciation of the U.S. dollar makes American goods ________ expensive relative to foreign goods which ________ net exports in the U.S.

A) less; decreases

B) less; increases

C) more; decreases✔

D) more; increases

57.A shift in tastes toward foreign goods ________ net exports in the U.S. and causes the quantity of aggregate output demanded to ________ in the U.S., everything else held constant.

A) decreases; rise

B) decreases; fall✔

C) increases; rise

D) increases; fall

58.Everything else held constant, a shift in tastes in the U.S. toward Mexican goods will ________ net exports in the U.S. and cause the quantity of aggregate output demanded to ________ in Mexico.

A) decrease; rise✔

B) decrease; fall

C) increase; rise

D) increase; fall

59.A shift in tastes toward American goods ________ net exports in the U.S. and causes the quantity of aggregate output demanded to ________ in the U.S., everything else held constant.

A) decreases; rise

B) decreases; fall

C) increases; rise✔

D) increases; fall

60.Everything else held constant, a shift in tastes in the U.S. towards American goods will ________ net exports in the U.S. and cause the quantity of aggregate output demanded to ________ in Mexico.

A) decrease; rise

B) decrease; fall

C) increase; rise

D) increase; fall✔

61.A shift in tastes toward American goods ________ net exports in the U.S. and causes the IS curve to shift to the ________ in the U.S., everything else held constant.

A) decreases; right

B) decreases; left

C) increases; right✔

D) increases; left

62.A shift in tastes toward foreign goods ________ net exports in the U.S. and causes the IS curve to shift to the ________ in the U.S., everything else held constant.

A) decreases; right

B) decreases; left✔

C) increases; right

D) increases; left

63.A depreciation of the U.S. dollar makes American goods cheaper relative to foreign goods, resulting in a ________ in net exports in the U.S. and a ________ shift of the IS curve in the U.S., everything else held constant.

A) fall; leftward

B) rise; leftward

C) fall; rightward

D) rise; rightward✔

64.An appreciation of the U.S. dollar makes foreign goods cheaper relative to American goods, resulting in a ________ in net exports in the U.S. and a ________ shift of the IS curve in the U.S., everything else held constant.

A) fall; leftward✔

B) rise; leftward

C) fall; rightward

D) rise; rightward

65.Which of the following does NOT shift the IS curve?

A) an increase in autonomous consumption

B) an increase in government spending

C) a decline in government spending

D) a fall in the interest rate✔