IS-LM Sample MCQ Questions for Macro Economics - UOL Introduction to Economics

UOL Introduction to Economics Sample MCQ Questions for Macro Economics 

1. What would happen to the IS-LM model when there is an increase in autonomous consumption and contractionary monetary policy was sought to prevent inflation?

A.     The IS curve would shift to the left and the LM curve would shift to the left

B.     The IS curve would shift to the right and the LM curve would shift to the left

C.     The IS curve would shift to the left and the LM curve would shift to the right

D.    The IS curve would shift to the right and the LM curve would shift to the right

2. If the multiplier effect in an economy is 5 times, what will happen to the national income when the government spending decrease by $200  

A.     income will increase by $1000

B.     income will increase by more than $1000 because a reduction in interest rates will increase investment spending

C.     income will increase by less than $1000 because an increase in interest rates will reduce investment spending

D.    income will increase by less than $1000 because an increase in inflation will reduce consumption spending

3. The expansionary policy in an economy cannot be fully experienced by the economy when

A.     money demand is not affected by interest rate changes

B.     the LM curve is vertical

C.     government spending changes do not affect output

D.    all of the above

4. When the government sells bond in the open market

A.     LM will shift to the right

B.     National income will return back to equilibrium when there is flexible prices and wages

C.     Interest rate will fall

D.    None of the above

5. Monetary policy is more effective when

A.     investment is less sensitive to the interest rate

B.     the IS curve is flatter

C.     the LM curve is flatter

D.    all of the above

6. In order for liquidity trap to happen,

A.     the LM curve is horizontal

B.     the LM curve is vertical

C.     monetary policy is very effective

D.    all of the above

7. The government aims to reduce interest rate and boost national income through policy. As a governor, you will choose to

A.     increase government expenditures

B.     increase government expenditures

C.     buy Treasury bonds.

D.    sell Treasury bonds

8. Consider two economies that are identical, except that one has a high marginal propensity to consume (MPC) and one has a low MPC. If the money supply is increased by the same amount in each economy, the high MPC economy will experience

A.     A larger increase in output and a smaller decrease in the interest rate.

B.     A smaller increase in output and a smaller decrease in the interest rate.

C.     A larger increase in output and a larger decrease in the interest rate.

D.    None of the above.

9. Suppose an economy is running a government budget surplus. Assume that C = c0 + c1(Y-tY). Which one of the following will cause this surplus to become larger?

A.     Expansionary monetary policy.

B.     An increase in exports.

C.     An increase in equilibrium GDP.

D.    A decrease in taxes.

10. If investment in the goods market is not interest sensitive,

A.     IS curve is a vertical line and monetary policy is very effective in raising output.

B.     IS curve is a horizontal line and monetary policy is very effective in raising output.

C.     The IS curve is a vertical line and monetary policy does not affect output in the IS-LM model.

D.    The IS curve is a horizontal line and monetary policy does not affect output in the IS-LM model.

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