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ECON 4020/ SPRING 2005 Instructor: Dr. M. Nirei Quiz 5 Date: 29th March, 2005 Duration: 15 minuets Instructions: Please write your name clearly on the SCANTRON sheet. Hand in only the SCANTRON paper upon completion. (1) The IS-LM model takes: a. b. c. d. National income as exogenous The price level as exogenous The interest rate as exogenous National income and the price level as exogenous (2) In the Keynesian-cross model, actual expenditure equals: a. b. c. d. GDP The money supply The supply of real balances Both (b) and (c) (3) According to the analysis underlying the Keynesian cross, when planned expenditure exceeds income: a. b. c. d. Income falls Planned expenditure falls Unplanned inventory investment is negative Prices rise (4) The government-purchases multiplier indicates effects of $1 change in government purchases on change in: a. b. c. d. Budget deficit Consumption Income Interest rate (5) According to the Keynesian-cross analysis, if MPC stands for marginal propensity to consume, then a rise in taxes of T will: a. b. c. d. Decrease equilibrium income by T Decrease equilibrium income by T /(1 MPC ) Decrease equilibrium income by (T )( MPC ) /(1 MPC ) Not affect equilibrium income at all (6) In the Keynesian-cross model, if government purchases increase by 250, then the equilibrium level of income: a. b. c. d. Increases by 250 Increases by more than 250 Decreases by 250 Increases, but by less than 250 (7) IS curve shows possible combinations of interest rate and income which equilibrates the market of : a. b. c. d. Goods and services Money market Labor market Import market (8) The IS curve shifts when all of the following economic variable change except: a. b. c. d. The interest rate Government spending Tax rates Marginal propensity to income (9) If consumer confidence increases, the IS curve will: a. b. c. d. Shift to the left Shift to the right Shift in either direction Not shift (10) When LM curve is drawn, the quantity that is help fixed is: a. b. c. d. The nominal money supply The real money supply Government spending The tax rate (11) In the theory of money demand, households and firms have an incentive to convert money into bonds when: a. b. c. d. Nominal interest rate goes up Nominal interest rate goes down Government spending decreases The tax rate increases (12) The theory of liquidity preference implies that, other things being equal, an increase in the real money supply will: a. b. c. d. Lower the interest rate Raise the interest rate Have no effect on the interest rate Either lower or raise the interest rate (13) The effect of tax-cut in the IS-LM model will be : a. b. c. d. Interest rate rises and income falls Interest rate falls and income rises Interest rate falls and income falls Interest rate rises and income rises (14) The LM curve, in the usual case: a. b. c. d. Is vertical Is horizontal Slopes down to the right Slopes up to the right (15) In the IS-LM model under the usual conditions in a closed economy, an increase in government spending increases the interest rate and crowds out: a. b. c. d. Prices Investment Money supply Taxes