Macroeconomics Practice Test - 6: Monetary and Fiscal Policy in a Closed Economy
Click on the correct option. Text colour will change into green if your chosen option is corret and if it is wrong, it will change into red:
- A liquidity effect occurs when
- A reduction in government spending lowers the rate of interest
- A money supply increase lowers the rate of interest
- An increase in government spending increases the rate of interest
- A money supply increase raises the rate of interest
- A liquidity effect will normally result in an output effect because
- Lower interest rates will increase the store-of-value demand for money
- Lower interest will cause less crowding-out
- Lower interest rates will increase interest-sensitive spending
- Lower interest rates will cause more crowding-out
- A change in the money supply has a greater effect upon output
- The more interest-sensitive private sector spending is
- The less interest-sensitive private sector spending is
- The smaller the expenditure multiplier is
- The more interest-sensitive money holdings are to the rate of interest
- A money supply increase shifts LM rightward by \(\Delta \overline M \left( {1/k} \right),\) with the actual change in output closely approximating the shift of LM when
- LM is steeply sloped and IS is steeply sloped
- LM is vertical and IS is steeply sloped
- LM is steeply sloped and IS is vertical
- LM is relatively flat as is IS
- In which of the following situations will an increase in the money supply have no effect upon output?
- LM is steeply sloped and IS is relatively flat
- LM is vertical and IS is steeply sloped
- LM is steeply sloped and IS is vertical
- LM is relatively flat as is IS
- \({k_e}\)is the expenditure multiplier, b the interest sensitivity of private sector spending, h the interest sensitivity of the demand for money, and k is the transaction demand for money. From the following sets of values for \({k_e},\) b, h, and k, find the one in which a change in the money supply will have the largest multiplying effect on output
- \({k_e},\) = 5, b = 5, h = 5, k = 0.20
- \({k_e},\) = 4, b = 1, h = 5, k = 0.20
- \({k_e},\) = 5, b = 10, h = 1, k = 0.20
- \({k_e},\) = 4, b = 5, h = 10, k = 0.10
- An increase in government spending shifts IS rightward by \({k_e}\Delta \overline G ,\) with the actual change in output closely approximating the schedule's shift when
- The LM is relatively flat and IS is steeply sloped
- The LM is vertical and IS is steeply sloped
- The LM is relatively flat as is IS
- The LM is steeply sloped and the IS is relatively flat
- Crowding-out is more likely to occur when
- The demand for money is interest-sensitive, and private sector spending is largely interest-insensitive
- The demand for money is interest-sensitive, and private sector spending is interest-sensitive
- The demand for money is interest-insensitive, and private sector spending is interest-insensitive
- The demand for money is interest-insensitive, and private sector spending is interest-sensitive
- Crowding-out occurs when
- A decrease in the money supply raises the rate of interest which crowds-out interest-sensitive private sector spending
- An increase in taxes for the private sector reduces private sector disposable income and spending
- A reduction in income taxes results in a higher interest rate, which crowds-out interest-sensitive private sector spending
- A reduction in government spending induces less consumption spending
- From the following sets of values fo \({k_e},\) b, h, and k, find the set in which a change in government spending has the largest multiplier effect on output
- \({k_e},\) = 5, b = 5, h = 5, k = 0.20
- \({k_e},\) = 10, b = 5, h = 10, k = 0.20
- \({k_e},\) = 5, b = 10, h = 1, k = 0.20
- \({k_e},\) = 5, b = 5, h = 1, k = 0.10
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