### Macroeconomics Practice Test - 5: The IS-LM Framework

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1. When investment is negatively related to the rate of interest, equilibrium output in the goods market

1. Is unrelated to the rate of interest

2. In inversely related to the rate of interest

3. Is positively related to the rate of interest

4. Falls as the rate of interest decreases

2. A $10 increase in autonomous investment shifts IS 1. Rightward by$10

2. Leftward by $10 3. Rightward by Ke ($10)

4. Leftward by Ke ($10) 3. Given the IS equation bi, the IS slope decrease (the IS schedule becomes flatter) when 1. $${k_e}$$ increases and b increases 2. $${k_e}$$ decreases and b increases 3. $${k_e}$$ increasea and b decreases 4. $${k_e}$$ decreases and b decreases 4. An increase in autonomous lump-sum taxes shifts IS 1. Rightward by $${k_t}\left( {\Delta \overline T x} \right)$$ 2. Leftward by $${k_t}\left( {\Delta \overline T x} \right)$$ 3. Rightward by $${k_t}\left( {\Delta \overline T x} \right)$$ 4. Leftward by $${k_t}\left( {\Delta \overline T x} \right)$$ 5. The demand for money is 1. Positively related to output and the rate of interest 2. Negatively related to output and the rate of interest 3. Negative related to output and positively related to the rate of interest 4. Positively related to output and negatively related to the rate of interest 6. Suppose the money supply and price level are constant, and the demand for money is a function of output and the rate of interest. When output increases, there is 1. An increase in the quantity of money demanded and an increase in the rate of interest 2. An increase in the quantity of money demanded and a decrease in the rate of interest 3. A decrease in the quantity of money demanded and a decrease in the rate of interest 4. A decrease in the quantity of money demanded and an increase in the rate of interest 7. When the LM equation is Y =$750 + 20i, there is equilibrium between the supply of and the demand for money when

1. The rate of interest is 10% and output is $750 2. The rate of interest is 10% and output is$800

3. The rate of interest is 10% and output $950 4. The rate of interest is 10% and output is$900

8. When there is an increase in the autonomous money supply, ceteris paribus, LM shifts

1. Rightward by $$\Delta \overline M$$

2. Rightward by $$k(\Delta \overline M )$$

3. Rightward by $$(\Delta \overline M )/k$$

4. Rightward by $$k/(\Delta \overline M )$$

9. Equilibrium in the money markets can be expressed by the equation $$i = \left( {k/h} \right)Y - \overline M /h$$ The slope of LM decreases (the LM schedule becomes flatter) when

1. K increases and h increases

2. K increases and h decreases

3. K decreases and h increases

4. K decreases and h decreases

10. Simultaneous equilibrium in the money (LM) and goods (IS) markets exists

1. At an unlimited number of output levels and rates of interest

2. At only one output level and rate of interest

3. At an unlimited number of output levels and only one rate of interest

4. At only one output level and an unlimited number of rates of interest