CHAPTER 22 REVIEW- ECO341
–Which of the following is NOT an objec”ve a country’s macro-economy is judged
against? GROWTH STABILITY
–The goal of internal balance requires: BOTH A AND D. (PRICE STABILITY+FULL
EMPOYMENT OF RECOURSES)
–Aggregate demand equals: C + Id + G + (X – M)
–Equilibrium GDP in the short-run is found when: Domes”c produc”on equals aggregate
demand.
–Real domestic investment spending is: Negatively related to the level
of interest rates in the economy.
–The amount by which imports increase when income goes up by one
dollar is called: The marginal propensity to import.
–If the marginal propensity to save is 0.3 and the marginal propensity to
import is 0.2, then value of the simple spending multiplier is: 2.0
–Fiscal policy consists of: Changes in government expenditures and
taxes.
–If the marginal propensity to save is 0.3 and the marginal propensity to
import is 0.1, and the government increases expenditures by $10
billion, ignoring foreign-income repercussions, how much will GDP rise?
25 billion
–When taking into account foreign-income repercussions, the spending
multiplier is __________ because: Larger; an increase in domestic
imports causes foreign income to rise and thus gives a boost to
domestic exports.
–The locomotive theory posits that: Growth in one or more large
countries can raise growth in other smaller countries that trade with
these larger countries.
–The IS curve illustrates: A) All combinations of domestic output levels
and interest rates for which the domestic product market is in
equilibrium.
–The IS curve has a: C) Negative slope because a higher interest rate
leads to a decrease in aggregate demand and thus a lower level of
domestic production is needed for equilibrium.
–The larger the spending multiplier, the __________ the IS curve. B)
FLATTER
–At points above the IS curve there is a(n) _________ and at points below
the IS curve there is a(n) __________. D) Excess supply of goods; excess
demand for goods
–An increase in government spending will: B) Shift the IS curve to the
right.
–Which of the following will NOT cause the IS curve to shift to the left?
An exogenous decrease in imports.
–The LM curve illustrates: B)All combinations of domestic output levels
and interest rates for which the domestic money market is in
equilibrium.
–The LM curve has a: A) Positive slope because a higher interest rate
leads to a decrease in the demand for money and thus a higher level of
domestic production is needed to cause people to continue to hold the
same amount of money.
–The demand for money is: Positively related to nominal GDP and
