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Question
Using the ISLM model, show graphically and explain the effects of a monetary contraction. What is the effect on the equilibrium interest rate and level of output?
Answer
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Related questions
Q:
If aggregated demand is less than actual output, unplanned inventory ________ will cause output to ________.
A) accumulation; rise
B) depletion; fall
C) depletion; rise
D) accumulation; fall
Q:
If aggregate demand falls short of current output, business firms will ________ production to ________ inventories.
A) cut; keep from accumulating
B) expand; keep from accumulating
C) cut; build up
D) expand; build up
Q:
In the Keynesian framework, as long as output is above the equilibrium level, unplanned inventory investment will remain ________ and firms will continue to ________ production.
A) negative; lower
B) negative; raise
C) positive; lower
D) positive; raise
Q:
In the Keynesian framework, as long as output is ________ the equilibrium level, unplanned inventory investment will remain ________ and firms will continue to raise production.
A) below; negative
B) above; negative
C) below; positive
D) above; positive
Q:
Keynes mentioned two factors that influenced planned investment spending:
A) interest rates and disposable income.
B) interest rates and business expectations about the future.
C) disposable income and business expectations about the future.
D) interest rates and business expectations about inflation.
Q:
Everything else held constant, if total consumption increases from $600 to $800 because of an increase of disposable income of $400, then the mpc is equal to
A) 0.2.
B) 0.4.
C) 0.5.
D) 0.6.
Q:
Assume that disposable income equals $1000 and the mpc equals 0.6. If total consumption equal $800, then autonomous consumption is equal to
A) $0.
B) $200.
C) $800.
D) $1000.
Q:
In the Keynesian model of income determination, consumer expenditure includes spending by
A) consumers on personal computers.
B) businesses on personal computers.
C) governments on personal computers.
D) foreigners on domestic personal computers.
Q:
Keynes's motivation in developing the aggregate output determination model stemmed from his concern with explaining
A) the hyperinflations of the 1920s.
B) why the Great Depression occurred.
C) the high unemployment in Great Britain before World War I.
D) the high unemployment in Great Britain after World War II.
Q:
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.
Q:
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
Q:
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
Q:
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
Q:
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
Q:
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
Q:
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
Q:
When the interest rate rises,
A) planned investment falls.
B) planned investment rises.
C) planned investment will be unaffected.
D) equilibrium income increases.
Q:
Keynes believed that unstable investment caused the Great Depression. Using the simple Keynesian model, explain how a fall in investment affects equilibrium output.
Q:
Researchers at the Federal Reserve found that M2 money demand functions performed ________ in the 1980s, with M2 velocity moving ________ with the opportunity cost of holding M2.
A) poorly; erratically
B) poorly; closely
C) well; erratically
D) well; closely
Q:
Starting in 1974, the conventional M1 money demand function began to severely ________ the demand for money. Stephen Goldfeld labeled this phenomenon "the case of the missing ________."
A) underpredict; velocity
B) overpredict; velocity
C) underpredict; money
D) overpredict; money
Q:
Starting in 1974, the conventional M1 money demand function began to
A) severely underpredict the demand for money.
B) severely overpredict the demand for money.
C) predict more precisely the demand for money.
D) do none of the above.
Q:
"Bureaucratic gambling" refers to
A) the strategy of thrift managers that they would not be audited by thrift regulators in the 1980s due to the relatively weak bureaucratic power of thrift regulators.
B) the risk that thrift regulators took in publicizing the plight of the S&L industry in the early 1980s.
C) the strategy adopted by thrift regulators of lowering capital requirements and pursuing regulatory forbearance in the 1980s in the hope that conditions in the S&L industry would improve.
D) the risk that regulators took in going to Congress to ask for additional funds.
Q:
In the early stages of the 1980s banking crisis, financial institutions were especially harmed by
A) declining interest rates from late 1979 until 1981.
B) the severe recession in 1981-82.
C) the disinflation from mid 1980 to early 1983.
D) the increase in energy prices in the early 80s.
Q:
The global financial crisis showed the need for increased financial regulation, however, too much or poorly designed regulation could
A) choke off financial innovation.
B) increase the efficiency of the financial system.
C) increase economic growth.
D) increase international financial integration.
Q:
Firms that are designated as systemically important financial institutions (SIFIs) are subject to all of the following additional Federal Reserve regulations except
A) higher capital standards.
B) stricter liquidity requirements.
C) providing a plan for orderly liquidation if necessary.
D) interest rate ceilings on time deposits.
Q:
Banking crises have occurred throughout the world. What similarities do we find when we look at the different countries?
Q:
All of the following are common to banking crises in different countries except
A) financial liberalization or innovation.
B) weak bank regulatory systems.
C) a government safety net.
D) a dual banking system.
Q:
Prior to the 1980s, S&Ls and mutual savings banks were restricted almost entirely to
A) commercial real estate loans.
B) home mortgages.
C) education loans.
D) vacation loans.
Q:
During times of financial crisis, mark-to-market accounting
A) requires that a financial firms' assets be marked down in value which can worsen the lending crisis.
B) leads to an increase in the financial firms' balance sheets since they can now get assets at bargain prices.
C) leads to an increase in financial firms' lending.
D) results in financial firms' assets increasing in value.
Q:
The chartering process is similar to ________ potential borrowers and the restriction of risk assets by regulators is similar to ________ in private financial markets.
A) screening; restrictive covenants
B) screening; branching restrictions
C) identifying; branching restrictions
D) identifying; credit rationing