1. The IS curve represents: a. the single level of output where the goods market is in equilibrium. b. the single level of output where nancial markets are in equilibrium. c. the combinations of output and the interest rate where the money market is in equilibrium. d. the combinations of output and the interest rate where the goods market is in equilibrium. 6. none of the above. 2. The IS curve will shift to the right when which of the following occurs? a. an increase in the money supply. b. an increase in government spending. c. a reduction in the interest rate. d. all of the above. e. none of the above. 3. Which of the following occurs as the economy moves leftward along a given IS curve? a. an increase in the interest rate causes investment spending to decrease. b. an increase in the interest rate causes money demand to increase. c. an increase in the interest rate causes a reduction in the money supply. d. a reduction in government spending causes a reduction in demand for goods. e. an increase in taxes causes a reduction in demand for goods. 4. For each interest rate, the LM curve illustrates the level of output where: a. the goods market is in equilibrium. b. inventory investment equals zero. c. money supply equals money demand. (1. all of the above. e. none of the above. 5. The LM curve shifts down (or, equivalently, to the right) when which of the following occurs? a. an increase in taxes. b. an increase in output. c. an open market sale of bonds by the central bank. d. an increase in consumer condence. e. none of the above. 6. During 2008 in the United States, consumer condence fell signicantly. Which of the following will occur as a result of this reduction in consumer condence? 3. the LM curve will shift up. b. the LM curve will shift down. C. the IS curve will shift rightward. d. the IS curve will shift leftward. e. the IS curve will shift rightward, and the LM curve will shift up. 7. In late 2007 and early 2008, the US. Federal Reserve pursued expansionary monetary policy. Which of the following will occur as a result of this monetary policy action? a. the LM curve shifts down. b. the LM curve shifts up. c. the IS curve shifts rightward as the interest rate falls. d. the IS curve shifts leftward as the interest rate increases. e. none of the above. 8. An increase in the money supply will cause an increase in which of the following variables? a. output. b. investment. c. consumption. d. all of the above. e. none of the above. 9. Suppose there is a simultaneous scal expansion and monetary expansion. We know with certainty that: a. output will increase. b. output will decrease. c. the interest rate will increase. d. the interest rate will decrease. 6. both output and the interest rate will increase. 10. Suppose there is a Fed purchase of bonds and simultaneous tax cut. We know with certainty that this combination of policies must cause: a. an increase in the interest rate (i) b. a reduction in i, c. an increase in output (Y) d. a reduction in Y 11. Suppose there is a simultaneous central bank sale of bonds and tax increase. We know with certainty that this combination of policies must cause: a. an increase in the interest rate (i) b. a reduction in i c. an increase in output (Y) d. a reduction in Y 12. An increase in the money supply must cause which of the following? a. a leftward shift in the IS curve b. a reduction in the interest rate and ambiguous effects on investment c. an increase in investment and a rightward shift in the IS curve d. no change in the interest rate if investment is independent of the interest rate e. no change in output if investment is independent of the interest rate 13. A Fed purchase of securities will most likely have which of the following effects? a. a rightward shift in the IS curve b. a leftward shift in the IS curve c. an upward shift in the LM curve d. a downward shift in the LM curve 14. Which of the following best defines the IS curve? a. the combinations of i and Y that maintain equilibrium in the goods market b. illustrates the effects of changes in i on investment c. illustrates the effects of changes in i on desired money holdings by individuals d. the combinations of i and Y that maintain equilibrium in financial markets15. The price setting equation is represented by the following: P = (\"HE When there is perfect competition, we know that 1.1 will equal: a. W b. P c. 1 d. W/P e. none of the above 16. The natural rate of unemployment is the rate of unemployment a. that occurs when the money market is in equilibrium. b. that occurs when the markup of prices over costs is zero. c. where the markup of prices over costs is equal to its historical value. d. that occurs when both the goods and nancial markets are in equilibrium. e. none of the above. 17. The natural level of employment (N) will increase when which of the following occurs? a. an increase in the markup of prices over costs. b. a reduction in unemployment benets. c. an increase in the actual unemployment rate. d. all of the above. e. none of the above. 18. Suppose workers and rms expect the overall price level to increase by 5%. Given this information, we would expect that: a. the nominal wage will increase by less than 5% b. the nominal wage will increase by exactly 5% c. the nominal wage will increase by more than 5% d. the real wage will increase by 5% e. the real wage will increase by less than 5% 19. Suppose the actual unemployment rate decreases. This will cause: a. an upward shift in the WS curve b. a downward shift in the WS curve c. an upward shift in the PS curve d. a downward shift in the PS curve e. none of the above 20. Suppose the aggregate production function is given by the following: Y = AN. Given this information, we know that labor productivity is represented by the following: a. l/A b. A c. l/N d. N/Y 21. Suppose the economy is currently operating on both the LM curve and the IS curve. Which of the following is true for this economy? a. production equals demand. b. the quantity supplied of bOnds equals the quantity demanded of bonds. c. the money supply equals money demand. d. nancial markets are in equilibrium. e. all of the above