Economics 302 Name __________________________________________
Fall 2009
Answers to Quiz #4 TA Name _______________________________________
December 2, 2009 Time of Section __________________________________
(1 point for each answer for a total of 25 points: we will reweight the quiz so that it has equivalent weight to the
other three quizzes in your grade calculation) Please fill in the blank for each of the following questions. Make sure
your answer is neatly and legibly written.
1. According to the IS-LM model, what happens in the short run to the interest rate, income,
consumption, and investment under the following circumstances? (Assume everything else is held
constant.)
a. The central bank decreases the money supply.
i. The interest rate ________increases_______________________
ii. Income ____________decreases__________________________
iii. Consumption ___________decreases______________________
iv. Investment ___________decreases________________________
b. The government decreases its level of expenditures.
i. The interest rate _________decreases______________________
ii. Income ___________decreases___________________________
iii. Consumption __________decreases_______________________
iv. Investment ___________increases________________________
c. The government imposes a new lower level of taxes.
i. The interest rate _________increases______________________
ii. Income ________________increases______________________
