ECON 251 EXAM 3 QUESTIONS AND ANSWERS
Monetary neutrality is a characteristic of the aggregate demand-aggregate supply model
in: - Answers -the long-run, but not in the short run
According to the Keynesian-cross analysis, when there is a shift upward in the
government-purchases schedule by an amount G and the planned expenditure
schedule by an equal amount, then equilibrium income rises by - Answers -G divided
by the quantity one minus the marginal propensity to consume
In the Keynesian-cross analysis, if the consumption function is given by C = 100 + 0.6(Y
ñ T), and planned investment is 100, G is 100, and T is 100, then equilibrium Y is: -
Answers -600
Consider the impact of an increase in thriftiness in the Keynesian-cross analysis.
Assume that the marginal propensity to consume is unchanged, but the intercept of the
consumption function is made smaller so that at every income level saving is greater.
This will:
A) lower equilibrium income by the decrease in the intercept multiplied by the multiplier.
B) lower equilibrium income by the decrease in the intercept.
C) raise equilibrium income by the decrease in the intercept.
D) raise equilibrium income by the decrease in the intercept multiplied by the multiplier -
Answers -A) lower equilibrium income by the decrease in the intercept multiplied by the
multiplier.
The reason that the income response to a fiscal expansion is generally less in the IS-LM
model than it is in the Keynesian-cross model is that the Keynesian-cross model
assumes that:
A) investment is not affected by the interest rate whereas in the IS-LM model fiscal
expansion raises the interest rate and crowds out investment.
B) investment is not affected by the interest rate whereas in the IS-LM model fiscal
expansion lowers the interest rate and crowds out investment.
C) investment is autonomous whereas in the IS-LM model fiscal expansion encourages
higher investment, which raises the interest rate.
D) the price level is fixed whereas in the IS-LM model it is allowed to vary - Answers -A)
investment is not affected by the interest rate whereas in the IS-LM model fiscal
expansion raises the interest rate and crowds out investment
If taxes are raised, but the Fed prevents income from falling by raising the money
supply, then:
A) both consumption and investment remain unchanged.
B) consumption rises but investment falls.
C) investment rises but consumption falls.
D) both consumption and investment fall. - Answers -C) investment rises but
consumption falls.
Monetary neutrality is a characteristic of the aggregate demand-aggregate supply model
in: - Answers -the long-run, but not in the short run
According to the Keynesian-cross analysis, when there is a shift upward in the
government-purchases schedule by an amount G and the planned expenditure
schedule by an equal amount, then equilibrium income rises by - Answers -G divided
by the quantity one minus the marginal propensity to consume
In the Keynesian-cross analysis, if the consumption function is given by C = 100 + 0.6(Y
ñ T), and planned investment is 100, G is 100, and T is 100, then equilibrium Y is: -
Answers -600
Consider the impact of an increase in thriftiness in the Keynesian-cross analysis.
Assume that the marginal propensity to consume is unchanged, but the intercept of the
consumption function is made smaller so that at every income level saving is greater.
This will:
A) lower equilibrium income by the decrease in the intercept multiplied by the multiplier.
B) lower equilibrium income by the decrease in the intercept.
C) raise equilibrium income by the decrease in the intercept.
D) raise equilibrium income by the decrease in the intercept multiplied by the multiplier -
Answers -A) lower equilibrium income by the decrease in the intercept multiplied by the
multiplier.
The reason that the income response to a fiscal expansion is generally less in the IS-LM
model than it is in the Keynesian-cross model is that the Keynesian-cross model
assumes that:
A) investment is not affected by the interest rate whereas in the IS-LM model fiscal
expansion raises the interest rate and crowds out investment.
B) investment is not affected by the interest rate whereas in the IS-LM model fiscal
expansion lowers the interest rate and crowds out investment.
C) investment is autonomous whereas in the IS-LM model fiscal expansion encourages
higher investment, which raises the interest rate.
D) the price level is fixed whereas in the IS-LM model it is allowed to vary - Answers -A)
investment is not affected by the interest rate whereas in the IS-LM model fiscal
expansion raises the interest rate and crowds out investment
If taxes are raised, but the Fed prevents income from falling by raising the money
supply, then:
A) both consumption and investment remain unchanged.
B) consumption rises but investment falls.
C) investment rises but consumption falls.
D) both consumption and investment fall. - Answers -C) investment rises but
consumption falls.
