11. Statement 1: The multiplier for autonomous consumption, I and G are differen
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Question
11. Statement 1: The multiplier for autonomous consumption, I and G are different given a specific value of MPC.
Statement 2: The lumpsum tax multiplier is always the G multiplier times the MPC.
a)Statement 1 is true, Statement 2 is true.
b)Statement 1 is true, Statement 2 is false.
c)Statement 1 is false, Statement 2 is true.
d)Statement 1 is false, Statement 2 is false.
12. Pick the correct statement
a)Every point on the IS curve corresponds to an equilibrium value of Y, for a given value of r.
b)Every point on the IS curve corresponds to an equilibrium in the commodity market.
c)Both (a) and (b)
d)None of the above
13. Increase in real money supply
a)Shifts the IS curve to the right
b)Shifts the LM curve to the right
c)Both (a) and (b)
d)None of the above
14. Together the IS-LM model shows an equilibrium. This equilibrium denotes
a)An equilibrium in the commodity market
b)An equilibrium in the money market
c)An equilibrium in the market for loanable funds
d)All of the above
15. Suppose that an expansionary fiscal policy has been enacted. To keep interest rates unchanged, what must the central bank do?
a)Nothing
b)Lower real money supply
c)Raise real money supply
d)None of the above
Explanation / Answer
12. c) Both (a) and (b)
IS curve represent different combination of income and interest rate where goods market is in equilibrium.
13. b) Shifts the LM curve to the right
Increase in real Money supply supply means increases in M/P which causes shift of LM curve.
14. d) All of the above
LM curve represents different combination of income and interest rate at which money market is in equilibrium. IS curve represents different combination of income and interest rate at which goods market is in equilibrium. So, IS-LM equilibrium is the point where goods and money market are in equilibrium.
15. c) Raise real money supply
Expansionary fiscal policy causes rightward shift of IS curve. To keep interest rate unchanged, central bank should shift LM curve rightwards and this can be done by raising the real money supply.
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