1. If the money demand does not depend on the interest rate, then the LM curve ______.
a. is horizontal
b. is vertical
c. shifts up to the right
d. shifts down to the right
2. If money demand becomes more income elastic, the LM curve will __________.
a. become flatter
b. shift to the right
c. become stepper
d. shift to the left
3. The labour force is defined as _________.
a. the total number of working age individuals in the population
b. the sum of employed and unemployed
c. the sum of the number of employed, unemployed and discouraged individuals
d. the total number employed
4.
In the IS-LM model, an increase in money supply will _______.
a. increase income but decrease interest rates
b. decrease income but increase interest rates
c. increase income and interest rates
d. decrease income and interest rates
5. Efficiency wages refer to wages set at a level _________.
a. to maximise union members’ total earnings
b. to encourage greater worker productivity
c. that would make the natural rate of unemployment zero
d. that would result in equilibrium in the labour market of each industry
6. In the IS-LM model, if interest rates rise while output falls
the _________.
a. money supply must have fallen
b. price level must have fallen
c. level of government spending must have fallen
d. level of government spending must have risen
7. If there is a decrease in government expenditures, then the
___________.
a. LM curve will shift to the left
b. LM curve will become flatter and shift to the left
c. IS curve will shift to the left
d. IS curve will become steeper and shift to the left
8. The IS curve is ______.
a. negatively sloped
b. positively sloped
c. shifted by change in money supply
d. a and c
9.
Why is there a negative relationship between unemployment and
the real wage?
a. Higher unemployment rates make workers more likely to look for
better paying jobs.
b. Lower unemployment rates make workers less likely to look for
better paying jobs.
c. Higher unemployment weakens workers’ position at the bargaining
table.
d. Higher unemployment empowers workers at the bargaining
table.
10. If goods markets are perfectly competitive, the markup of
the price over cost (m) is _________.
a. equal to one
b. greater than one
c. equal to zero
d. greater than zero
1..)
Answer: ( B)
If money demand does not depends on interest rate, it suggests that change in interest rate does not affect demand for money. Thus, LM curve becomes vertical.
2)
Answer: ( C)
More income elastic LM curve means rise in income leads to larger rise in the demand for money. So LM curve becomes steeper.
3)
Answer: ( B)
Labor force includes only employed and unemployed. Discouraged workers are not part of labor force even though these workers do not have job.
4)
Answer: ( A)
Increase in money supply shifts the LM curve to right thereby pulling down interest rate and raising the level of output.
5)
Answer: (B)
Efficiency wage is greater than the minimum wage. It is usually offered to retain highly productive workers or encouraging workers to do more productive activities.
6)
Answer: ( A)
When money supply falls, the LM curve shifts to left thereby pushing up interest rate and decreasing output level.
1. If the money demand does not depend on the interest rate, then the LM curve...
If money demand does not depend on the interest rate, then the LM curve is ______ and ______ policy has no effect on output. A. horizontal; monetary B. vertical; monetary C. horizontal; fiscal D. vertical; fiscal
OY 10. By referring to Figure 7-1, an increase in the money stock a shifts the LM schedule to the right from LMoto LM b shifts the LM schedule to the left from LMo to LM e leaves the LM curve unchanged at LM. d. shifts neither the IS nor the LM schedule. 11. Changes in all of the following shift the LM curve except a. the price level. b. income. c. the money supply. d. money demand. e. all...
20. Banks decide to raise the interest rate they pay on checking accoun action would A) increase money demand, shifting the LM curve up and to the ci B) increase money demand, shiftino the IM curve down and to the C) decrease money demand, shifting the M curve up and to the tem D) decrease money demand, shifting the LM curve down and to cing accounts from 1% to 2%. This curve down and to the right. & the LM...
11. Which of the following statements correctly describes the relationship between the interest rate and money demand? A. When the interest rate increases, money demand increases because interest-paying bonds become more attractive than the money balance. B. When the interest rate increases, money demand increases because interest-paying bonds become less attractive than the money balance. c. When the interest rate increases, money demand decreases because interest-paying bonds become more attractive than the money balance. D. When the interest rate increases,...
Assume the LM curve is flat. An increase in the risk premium A. the IS-curve will shift to the right and an increase in equilibrium output. B. the LM-curve will shift to the up and an increase in equilibrium interest rate. C. the LM-curve and IS-curve remain same, so no impact on equilibrium output and interest rate D. the LM-curve will shift to the down and an increase in equilibrium output. E. the IS-curve will shift to the left and...
Suppose that MD is insensitive to the interest rate. What does the LM curve look like (graphically)? What is the effect on output and interest rates from a shift in the IS curve? Suppose that MD is very sensitive to the interest rate. What does the LM curve look like (graphically)? What is the effect of a shift in the IS curve on output and interest rates? Suppose that AD is very sensitive to the interest rate. Draw the IS...
The LM curve is steeper the ______ the interest sensitivity of money demand and the ______ the effect of income on money demand. a. greater; greater b. greater; smaller c. smaller; smaller d. smaller; greater
According to the Mundell Fleming model an appreciation of the exchange rate will cause the LM* curve to A) shift to the right. B) shift to the left. C) remain unchanged. D) become flatter.
50. Ceteris paribus, the total demand for money curve will increase (shift rightward): A. if interest rates increase. B. if nominal GDP decreases. C. if the price level decreases. D. if nominal GDP increases. 51. Ceteris paribus, the total demand for money curve will decrease (shift leftward): A. if interest rates increase. B. if nominal GDP decreases. C. if the price level increases. D. if nominal GDP increases. 52. Which of the following is correct? A. The asset (speculative) demand...
Please box answers! Thank you. 11. Monetary policy and the LM curve Aa Aa The following graph shows the demand and supply of real money balances in a hypothetical economy. Use the black point (X point) to indicate the equilibrium in this market. Dashed drop lines will automatically extend to both axes. REAL INTEREST RATE [Percent) 10 Equilibrium Supply New Supply New Equilibrium Demand 3 0 10 20 30 40 50 60 70 80 90 100 REAL MONEY BALANCES Help...