Question 1

Keynes believed that persistent unemployment during a recession was a result of

Question 1 options:
•    the control that large firms exerted on the economy
•    the greed that is inherent in the capitalistic system
•    a real wage that was too high
•    structural factors in labor markets

Question 2

One definition of demand is that demand is a schedule that shows the quantity of output that buyers are willing and able to purchase at various prices.  The relationship of the IS curve to this definition is that

Question 2 options:
•    IS shows the ability to buy real GDP
•    IS is the demand curve in the IS-LM model
•    IS shows the willingness to purchase GDP
•    IS shows the equilibrium combination of output and prices

Question 3

The IS-LM analysis with real interest rates along the Y axis and real GDP on the X axis assumes that

Question 3 options:
•    Aggregate supply is positively sloped in the Price-Quantity plane
•    Aggregate supply is fixed at a given price level
•    Aggregate supply creates its own aggregate demand
•    Aggregate supply is fixed at given level of output

Question 4

The intersection of the IS and LM curves

Question 4 options:
•    may show disequilibrium levels of aggregate output
•    may show real GDP with some workers unemployed
•    may show prices that are greater than wages
•    may show disequilibrium real interest rates

Question 5

In Keynesian monetary theory

Question 5 options:
•    the velocity of money can vary
•    investment spending is stable
•    the velocity of money is stable
•    consumption spending is volatile

Question 6

The intercept term for the IS curve has all of the following except

Question 6 options:
•    autonomous investment
•    interest rate sensitivity of investment
•    real GDP
•    government spending

Question 7

The intercept term of the LM curve has all of the following except

Question 7 options:
•    autonomous money demand
•    money supply
•    the real interest rate
•    interest rate sensitivity of money demand

Question 8

One definition of demand is that demand is a schedule that shows the quantity of output that buyers are willing and able to purchase at various prices.  The relationship of the LM curve to this definition is that

Question 8 options:
•    LM shows the ability to buy aggregate output
•    LM is the supply curve that intersects the demand curve shown by IS
•    LM shows an equilibrium combination of prices and output from the perspective of money markets
•    LM shows the willingness to buy aggregate output

Question 9

When the interest rate sensitivity of money demand is zero, the multiplier for monetary policy reduces to one divided by the transactions parameter.  This is also

Question 9 options:
•    the money multiplier
•    the autonomous expenditure multiplier
•    the velocity of money
•    the speculative demand for money

Question 10

A flat IS curve and steep LM curve favor _____

Question 10 options:
•    interventionist economic policy
•    monetary policy
•    fiscal policy
•    non-interventionist economic policy

Question 11

IS-LM analysis provides a macroeconomic model of

Question 11 options:
•    demand and supply
•    allocation in resource markets
•    demand
•    supply

Question 12

A positively sloped LM curve

Question 12 options:
•    is a necessary condition for Keynesian policy conclusions to be valid.
•    indicates the interest rate sensitivity of investment demand is close to zero.
•    is not a primary requirement for Keynesian analysis to be valid.
•    indicates that the interest rate sensitivity of money demand is close to zero.

Question 13

Aggregate demand is derived in the IS-LM model by

Question 13 options:
•    shifting IS curve through price changes
•    changing the slope of the LM curve
•    shifting the LM curve through price changes
•    changing the slope of the IS curve

Question 14

The intersection of Aggregate Demand and Aggregate Supply in Keynesian analysis is an equilibrium

Question 14 options:
•    that shows full-employment production of real GDP
•    that may occur even when there is significant unemployment
•    that demonstrates the general validity of Say’s Law
•    that can only exist in an economy with full and relevant information

Question 15

Fiscal policy is effective when

Question 15 options:
•    the interest rate sensitivity of money demand is high
•    the interest rate sensitivity investment demand is high
•    the interest rate sensitivity investment demand is low
•    the interest rate sensitivity money demand is low

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