Question 1

Which of the following best describes the IS curve in the IS-LM model?

Accepted Answer

It represents combinations of interest rates and output where the goods market is in equilibrium.

Question 2

Suppose the central bank increases the money supply. According to the IS-LM model, what is the most likely short-run effect on interest rates and output?

Accepted Answer

Interest rates fall and output rises.

Question 3

Given the IS-LM model, if the government increases taxes, what is the expected effect on the IS curve?

Accepted Answer

The IS curve shifts to the left.

Question 4

Which equation correctly represents the equilibrium in the goods market (IS curve)?

Accepted Answer

$$Y = C + I + G$$

Question 5

In the IS-LM model, what happens to the equilibrium output if both government spending and the money supply increase simultaneously?

Accepted Answer

Equilibrium output increases.

Question 6

If the interest rate is above the equilibrium level in the money market, what will happen according to the LM curve?

Accepted Answer

There will be an excess supply of money, causing the interest rate to fall.

Question 7

Which of the following is a direct effect of an increase in autonomous investment in the IS-LM model?

Accepted Answer

The IS curve shifts to the right.

Question 8

Consider the following scenario: The government increases spending by $$\100$ million, and the marginal propensity to consume is 0.8$. What is the total increase in output according to the simple multiplier?

Accepted Answer

$$\500$ million

Question 9

Which of the following best describes the LM curve?

Accepted Answer

It shows combinations of output and interest rates where the money market is in equilibrium.

Question 10

If the central bank wants to decrease the equilibrium interest rate, which policy should it pursue according to the IS-LM model?

Accepted Answer

Increase the money supply.

Question 11

Suppose the IS curve is given by $$Y = 500 + 0.7Y - 100r$$, where $$r is $$the interest rate. What is the equilibrium level of output when $$r = 5$$?

Accepted Answer

$$Y = 650$$

Question 12

Which of the following is NOT a component of aggregate demand in the IS-LM model?

Accepted Answer

Money supply

Question 13

In the IS-LM model, what is the effect of an increase in the price level on the LM curve?

Accepted Answer

The LM curve shifts to the left.

Question 14

Which formula represents the money market equilibrium in the LM curve?

Accepted Answer

$$M^d = M^s$$

Question 15

If the marginal propensity to consume (MPC) is $$0.75$$, what is the value of the simple multiplier?

Accepted Answer

$$4$$

Question 16

A decrease in autonomous consumption will have what effect on the IS curve?

Accepted Answer

Shift the IS curve to the left.

Question 17

Which of the following policies is considered contractionary fiscal policy?

Accepted Answer

Decreasing government spending.

Question 18

In the IS-LM model, what is the effect of an increase in expected inflation on the LM curve?

Accepted Answer

The LM curve shifts to the right.

Question 19

Suppose the government increases spending by $$\200$ million and the simple multiplier is 2.5$. What is the total increase in output?

Accepted Answer

$$\500$ million

Question 20

Which of the following best explains why the IS curve is downward sloping?

Accepted Answer

Higher interest rates reduce investment, leading to lower output.

Macroeconomics I: Course Outline and Key Concepts

Study Guide - Practice Questions

Study Guide - Flashcards