Q 1

Which one of the following is NOT a fully exogenous variable in the IS-LM model?

A.

Interest rate.

B.

Quantity of money.

C.

Government spending.

D.

Taxes.

Q 2 Which one of the following statements is INCORRECT?

Select one:

A.

Consumption is a positive function of the level of output and income, whereas investment is a positive function of the level of output and income and the interest rate.

B.

In the goods market model, investment spending is regarded as an autonomous variable, but according to our analysis in the IS-LM model, the investment function will change from I = to I = I(Y, i).

C.

When we introduce investment as an endogenous variable to our goods market model our equilibrium equation changes from Y = Z = c₀ + c(Y - T) + + G to

Y = Z = c₀ + c(Y - T) + I(Y,i) + G.

D.

When firms increase their spending on capital goods, it implies that the expected return rate of these investment projects is higher than the market interest rate.

Q3 Which one of the following statements is INCORRECT?

To derive the IS curve ...

Select one:

A.

government spending and taxes remain unchanged.

B.

investment is regarded as fully autonomous.

C.

a change in the interest rate will impact the goods market.

D.

the interest rate can increase or decrease.

Q 4 This question is based on the diagram below:

\fa C b IS1 IS Y O