Ans:A Keynesian Cross Loanublc Funds Planned Expendmre Inter\". 5 S1 talc. r ' - P52 1. ........ A r] ......... 3 Ps1 I S" 5: Income. Output. Y Saving. Investment. 5'. I 20. Both graphs illustrate the inverse relationship between the equilibrium interest rate and the equilibrium level of income. The economy moves from equilibrium A to equilibrium 3 in the Keynesian-cross diagram as a result of a(n) that shifts planned expenditures. A) increase in income B) decrease in income C) increase in the interest rate D) decrease in the interest rate Ans: D 21. If the demand function for money is MIP = 0.5Y lOOr and if MIP increases by 100, then the LM curve for any given interest rate shifts to the: A) left by 100. B) left by 200. C) right by 100. D) right by 200. Ans: D 22. The slope of the IS curve depends on: A) the interest sensitivity of investment and the amount of government spending. B) the interest sensitivity of investment and the marginal propensity to consume. C) the interest sensitivity of the demand for money and the tax rates. D) tax rates and government spending. Ans: B 23. 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 Ans: D 24. If MPC = 0.75 (and there are no income taxes but only lump-sum taxes), when T decreases by 100, then the IS curve for any given interest rate shifts to the right by: A) 100. B) 200. C) 300. D) 400