201 -300 tough and highly challenging multiple-choice questions on the IS-LM model and its components, along with their answers
201 -300 tough and highly challenging multiple-choice questions on the IS-LM model and its components, along with their answers:
201. **Interest Rate Sensitivity and Consumption**:
Question: In the IS-LM model, if households become highly sensitive to changes in interest rates when making consumption decisions, how does this affect the IS curve?
a) The IS curve becomes steeper.
b) The IS curve becomes flatter.
c) The IS curve shifts to the right.
d) The IS curve shifts to the left.
Correct Answer: a) The IS curve becomes steeper.
202. **Money Supply Elasticity and Central Bank Policy**:
Question: In the IS-LM model, if the central bank conducts open market operations to purchase long-term government bonds, what effect does this have on the money supply and interest rates?
a) Money supply increases, interest rates rise.
b) Money supply increases, interest rates fall.
c) Money supply decreases, interest rates rise.
d) Money supply decreases, interest rates fall.
Correct Answer: b) Money supply increases, interest rates fall.
203. **Policy Mix and Fiscal Policy Dominance**:
Question: In the IS-LM model, if fiscal policy is dominant, what is the likely outcome when the government increases government spending and the central bank increases the money supply?
a) Income rises, interest rates rise.
b) Income falls, interest rates fall.
c) Income falls, interest rates rise.
d) Income rises, interest rates fall.
Correct Answer: b) Income falls, interest rates fall.
204. **Fiscal Policy and Tax Changes**:
Question: If the government increases government spending and decreases taxes in the IS-LM model, what is the expected outcome for equilibrium income and interest rates?
a) Income rises, interest rates rise.
b) Income falls, interest rates fall.
c) Income falls, interest rates rise.
d) Income rises, interest rates fall.
Correct Answer: d) Income rises, interest rates fall.
205. **Investment and Technological Advancements**:
Question: In the IS-LM model, if there is a sudden increase in technological advancements leading to higher expected returns on investment, what happens to the IS curve?
a) The IS curve shifts to the right.
b) The IS curve shifts to the left.
c) The IS curve steepens.
d) The IS curve flattens.
Correct Answer: a) The IS curve shifts to the right.
206. **Income and Money Demand**:
Question: In the LM curve of the IS-LM model, if the income elasticity of money demand is positive, what happens to the LM curve?
a) The LM curve shifts to the right.
b) The LM curve shifts to the left.
c) The LM curve becomes steeper.
d) The LM curve becomes flatter.
Correct Answer: a) The LM curve shifts to the right.
207. **Monetary Policy and Interest Rate Targeting**:
Question: In the IS-LM model, if the central bank increases the target interest rate, what effect does this have on the money supply and interest rates?
a) Money supply increases, interest rates rise.
b) Money supply increases, interest rates fall.
c) Money supply decreases, interest rates rise.
d) Money supply decreases, interest rates fall.
Correct Answer: a) Money supply increases, interest rates rise.
208. **Policy Mix and Monetary Policy Dominance**:
Question: In the IS-LM model, if monetary policy is dominant, what is the likely outcome when the central bank increases the money supply and the government increases government spending?
a) Income rises, interest rates rise.
b) Income falls, interest rates fall.
c) Income falls, interest rates rise.
d) Income rises, interest rates fall.
Correct Answer: a) Income rises, interest rates rise.
209. **Interest Rate Sensitivity and Consumption**:
Question: In the IS-LM model, if households become highly insensitive to changes in interest rates when making consumption decisions, how does this affect the IS curve?
a) The IS curve becomes steeper.
b) The IS curve becomes flatter.
c) The IS curve shifts to the right.
d) The IS curve shifts to the left.
Correct Answer: b) The IS curve becomes flatter.
210. **Money Supply Elasticity and Central Bank Policy**:
Question: In the IS-LM model, if the central bank conducts open market operations to sell short-term government bonds, what effect does this have on the money supply and interest rates?
a) Money supply increases, interest rates rise.
b) Money supply increases, interest rates fall.
c) Money supply decreases, interest rates rise.
d) Money supply decreases, interest rates fall.
Correct Answer: c) Money supply decreases, interest rates rise.
211. **Fiscal Policy and Government Spending Multiplier**:
Question: In the IS-LM model, if the government decreases government spending while the marginal propensity to consume (MPC) is high, what is the expected impact on equilibrium income?
a) A large increase in income.
b) A small increase in income.
c) No change in income.
d) A decrease in income.
Correct Answer: d) A decrease in income.
212. **Investment and Business Confidence**:
Question: In the IS-LM model, if business confidence decreases significantly, what is the likely effect on the IS curve?
a) The IS curve shifts to the right.
b) The IS curve shifts to the left.
c) The IS curve steepens.
d) The IS curve flattens.
Correct Answer: b) The IS curve shifts to the left.
213. **Interest Rate Sensitivity and Consumption**:
Question: In the IS-LM model, if households become highly sensitive to changes in interest rates when making consumption decisions, how does this affect the IS curve?
a) The IS curve becomes steeper.
b) The IS curve becomes flatter.
c) The IS curve shifts to the right.
d) The IS curve shifts to the left.
Correct Answer: c) The IS curve shifts to the right.
214. **Money Supply Elasticity and Central Bank Policy**:
Question: In the IS-LM model, if the central bank conducts open market operations to purchase long-term government bonds, what effect does this have on the money supply and interest rates?
a) Money supply increases, interest rates rise.
b) Money supply increases, interest rates fall.
c) Money supply decreases, interest rates rise.
d) Money supply decreases, interest rates fall.
Correct Answer: b) Money supply increases, interest rates fall.
215. **Policy Mix and Fiscal Policy Dominance**:
Question: In the IS-LM model, if fiscal policy is dominant, what is the likely outcome when the government decreases government spending and the central bank increases the money supply?
a) Income rises, interest rates rise.
b) Income falls, interest rates fall.
c) Income falls, interest rates rise.
d) Income rises, interest rates fall.
Correct Answer: d) Income rises, interest rates fall.
216. **Fiscal Policy and Tax Changes**:
Question: If the government decreases government spending and increases taxes in the IS-LM model, what is the expected outcome for equilibrium income and interest rates?
a) Income rises, interest rates rise.
b) Income falls, interest rates fall.
c) Income falls, interest rates rise.
d) Income rises, interest rates fall.
Correct Answer: c) Income falls, interest rates rise.
217. **Investment and Technological Advancements**:
Question: In the IS-LM model, if there is a sudden decrease in technological advancements leading to lower expected returns on investment, what happens to the IS curve?
a) The IS curve shifts to the right.
b) The IS curve shifts to the left.
c) The IS curve steepens.
d) The IS curve flattens.
Correct Answer: b) The IS curve shifts to the left.
218. **Income and Money Demand**:
Question: In the LM curve of the IS-LM model, if the income elasticity of money demand is negative, what happens to the LM curve?
a) The LM curve shifts to the right.
b) The LM curve shifts to the left.
c) The LM curve becomes steeper.
d) The LM curve becomes flatter.
Correct Answer: b) The LM curve shifts to the left.
219. **Monetary Policy and Interest Rate Targeting**:
Question: In the IS-LM model, if the central bank decreases the target interest rate, what effect does this have on the money supply and interest rates?
a) Money supply increases, interest rates rise.
b) Money supply increases, interest rates fall.
c) Money supply decreases, interest rates rise.
d) Money supply decreases, interest rates fall.
Correct Answer: b) Money supply increases, interest rates fall.
220. **Policy Mix and Monetary Policy Dominance**:
Question: In the IS-LM model, if monetary policy is dominant, what is the likely outcome when the central bank decreases the money supply and the government decreases government spending?
a) Income rises, interest rates rise.
b) Income falls, interest rates fall.
c) Income falls, interest rates rise.
d) Income rises, interest rates fall.
Correct Answer: c) Income falls, interest rates rise.
221. **Interest Rate Sensitivity and Consumption**:
Question: In the IS-LM model, if households become very insensitive to changes in interest rates when making consumption decisions, how does this affect the IS curve?
a) The IS curve becomes steeper.
b) The IS curve becomes flatter.
c) The IS curve shifts to the right.
d) The IS curve shifts to the left.
Correct Answer: b) The IS curve becomes flatter.
222. **Money Supply Elasticity and Central Bank Policy**:
Question: In the IS-LM model, if the central bank conducts open market operations to sell short-term government bonds, what effect does this have on the money supply and interest rates?
a) Money supply increases, interest rates rise.
b) Money supply increases, interest rates fall.
c) Money supply decreases, interest rates rise.
d) Money supply decreases, interest rates fall.
Correct Answer: c) Money supply decreases, interest rates rise.
223. **Fiscal Policy and Government Spending Multiplier**:
Question: In the IS-LM model, if the government decreases government spending while the marginal propensity to consume (MPC) is low, what is the expected impact on equilibrium income?
a) A large increase in income.
b) A small increase in income.
c) No change in income.
d) A decrease in income.
Correct Answer: d) A decrease in income.
224. **Investment and Business Confidence**:
Question: In the IS-LM model, if business confidence increases significantly, what is the likely effect on the IS curve?
a) The IS curve shifts to the right.
b) The IS curve shifts to the left.
c) The IS curve steepens.
d) The IS curve flattens.
Correct Answer: a) The IS curve shifts to the right.
225. **Interest Rate Sensitivity and Consumption**:
Question: In the IS-LM model, if households become very sensitive to changes in interest rates when making consumption decisions, how does this affect the IS curve?
a) The IS curve becomes steeper.
b) The IS curve becomes flatter.
c) The IS curve shifts to the right.
d) The IS curve shifts to the left.
Correct Answer: c) The IS curve shifts to the right.
226. **Money Supply Elasticity and Central Bank Policy**:
Question: In the IS-LM model, if the central bank conducts open market operations to purchase long-term government bonds, what effect does this have on the money supply and interest rates?
a) Money supply increases, interest rates rise.
b) Money supply increases, interest rates fall.
c) Money supply decreases, interest rates rise.
d) Money supply decreases, interest rates fall.
Correct Answer: b) Money supply increases, interest rates fall.
227. **Policy Mix and Fiscal Policy Dominance**:
Question: In the IS-LM model, if fiscal policy is dominant, what is the likely outcome when the government decreases government spending and the central bank increases the money supply?
a) Income rises, interest rates rise.
b) Income falls, interest rates fall.
c) Income falls, interest rates rise.
d) Income rises, interest rates fall.
Correct Answer: d) Income rises, interest rates fall.
228. **Fiscal Policy and Tax Changes**:
Question: If the government decreases government spending and decreases taxes in the IS-LM model, what is the expected outcome for equilibrium income and interest rates?
a) Income rises, interest rates rise.
b) Income falls, interest rates fall.
c) Income falls, interest rates rise.
d) Income rises, interest rates fall.
Correct Answer: b) Income falls, interest rates fall.
229. **Investment and Technological Advancements**:
Question: In the IS-LM model, if there is a sudden decrease in technological advancements leading to lower expected returns on investment, what happens to the IS curve?
a) The IS curve shifts to the right.
b) The IS curve shifts to the left.
c) The IS curve steepens.
d) The IS curve flattens.
Correct Answer: b) The IS curve shifts to the left.
230. **Income and
Money Demand**:
Question: In the LM curve of the IS-LM model, if the income elasticity of money demand is negative, what happens to the LM curve?
a) The LM curve shifts to the right.
b) The LM curve shifts to the left.
c) The LM curve becomes steeper.
d) The LM curve becomes flatter.
Correct Answer: b) The LM curve shifts to the left.
231. **Monetary Policy and Interest Rate Targeting**:
Question: In the IS-LM model, if the central bank decreases the target interest rate, what effect does this have on the money supply and interest rates?
a) Money supply increases, interest rates rise.
b) Money supply increases, interest rates fall.
c) Money supply decreases, interest rates rise.
d) Money supply decreases, interest rates fall.
Correct Answer: b) Money supply increases, interest rates fall.
232. **Policy Mix and Monetary Policy Dominance**:
Question: In the IS-LM model, if monetary policy is dominant, what is the likely outcome when the central bank decreases the money supply and the government decreases government spending?
a) Income rises, interest rates rise.
b) Income falls, interest rates fall.
c) Income falls, interest rates rise.
d) Income rises, interest rates fall.
Correct Answer: c) Income falls, interest rates rise.
233. **Interest Rate Sensitivity and Consumption**:
Question: In the IS-LM model, if households become highly insensitive to changes in interest rates when making consumption decisions, how does this affect the IS curve?
a) The IS curve becomes steeper.
b) The IS curve becomes flatter.
c) The IS curve shifts to the right.
d) The IS curve shifts to the left.
Correct Answer: b) The IS curve becomes flatter.
234. **Money Supply Elasticity and Central Bank Policy**:
Question: In the IS-LM model, if the central bank conducts open market operations to sell short-term government bonds, what effect does this have on the money supply and interest rates?
a) Money supply increases, interest rates rise.
b) Money supply increases, interest rates fall.
c) Money supply decreases, interest rates rise.
d) Money supply decreases, interest rates fall.
Correct Answer: c) Money supply decreases, interest rates rise.
235. **Fiscal Policy and Government Spending Multiplier**:
Question: In the IS-LM model, if the government decreases government spending while the marginal propensity to consume (MPC) is high, what is the expected impact on equilibrium income?
a) A large increase in income.
b) A small increase in income.
c) No change in income.
d) A decrease in income.
Correct Answer: b) A small increase in income.
236. **Investment and Business Confidence**:
Question: In the IS-LM model, if business confidence decreases significantly, what is the likely effect on the IS curve?
a) The IS curve shifts to the right.
b) The IS curve shifts to the left.
c) The IS curve steepens.
d) The IS curve flattens.
Correct Answer: b) The IS curve shifts to the left.
237. **Interest Rate Sensitivity and Consumption**:
Question: In the IS-LM model, if households become highly sensitive to changes in interest rates when making consumption decisions, how does this affect the IS curve?
a) The IS curve becomes steeper.
b) The IS curve becomes flatter.
c) The IS curve shifts to the right.
d) The IS curve shifts to the left.
Correct Answer: c) The IS curve shifts to the right.
238. **Money Supply Elasticity and Central Bank Policy**:
Question: In the IS-LM model, if the central bank conducts open market operations to purchase long-term government bonds, what effect does this have on the money supply and interest rates?
a) Money supply increases, interest rates rise.
b) Money supply increases, interest rates fall.
c) Money supply decreases, interest rates rise.
d) Money supply decreases, interest rates fall.
Correct Answer: b) Money supply increases, interest rates fall.
239. **Policy Mix and Fiscal Policy Dominance**:
Question: In the IS-LM model, if fiscal policy is dominant, what is the likely outcome when the government decreases government spending and the central bank increases the money supply?
a) Income rises, interest rates rise.
b) Income falls, interest rates fall.
c) Income falls, interest rates rise.
d) Income rises, interest rates fall.
Correct Answer: d) Income rises, interest rates fall.
240. **Fiscal Policy and Tax Changes**:
Question: If the government decreases government spending and increases taxes in the IS-LM model, what is the expected outcome for equilibrium income and interest rates?
a) Income rises, interest rates rise.
b) Income falls, interest rates fall.
c) Income falls, interest rates rise.
d) Income rises, interest rates fall.
Correct Answer: c) Income falls, interest rates rise.
241. **Investment and Technological Advancements**:
Question: In the IS-LM model, if there is a sudden decrease in technological advancements leading to lower expected returns on investment, what happens to the IS curve?
a) The IS curve shifts to the right.
b) The IS curve shifts to the left.
c) The IS curve steepens.
d) The IS curve flattens.
Correct Answer: b) The IS curve shifts to the left.
242. **Income and Money Demand**:
Question: In the LM curve of the IS-LM model, if the income elasticity of money demand is negative, what happens to the LM curve?
a) The LM curve shifts to the right.
b) The LM curve shifts to the left.
c) The LM curve becomes steeper.
d) The LM curve becomes flatter.
Correct Answer: b) The LM curve shifts to the left.
243. **Monetary Policy and Interest Rate Targeting**:
Question: In the IS-LM model, if the central bank decreases the target interest rate, what effect does this have on the money supply and interest rates?
a) Money supply increases, interest rates rise.
b) Money supply increases, interest rates fall.
c) Money supply decreases, interest rates rise.
d) Money supply decreases, interest rates fall.
Correct Answer: b) Money supply increases, interest rates fall.
244. **Policy Mix and Monetary Policy Dominance**:
Question: In the IS-LM model, if monetary policy is dominant, what is the likely outcome when the central bank decreases the money supply and the government decreases government spending?
a) Income rises, interest rates rise.
b) Income falls, interest rates fall.
c) Income falls, interest rates rise.
d) Income rises, interest rates fall.
Correct Answer: c) Income falls, interest rates rise.
245. **Interest Rate Sensitivity and Consumption**:
Question: In the IS-LM model, if households become very insensitive to changes in interest rates when making consumption decisions, how does this affect the IS curve?
a) The IS curve becomes steeper.
b) The IS curve becomes flatter.
c) The IS curve shifts to the right.
d) The IS curve shifts to the left.
Correct Answer: b) The IS curve becomes flatter.
246. **Money Supply Elasticity and Central Bank Policy**:
Question: In the IS-LM model, if the central bank conducts open market operations to sell short-term government bonds, what effect does this have on the money supply and interest rates?
a) Money supply increases, interest rates rise.
b) Money supply increases, interest rates fall.
c) Money supply decreases, interest rates rise.
d) Money supply decreases, interest rates fall.
Correct Answer: c) Money supply decreases, interest rates rise.
247. **Fiscal Policy and Government Spending Multiplier**:
Question: In the IS-LM model, if the government decreases government spending while the marginal propensity to consume (MPC) is low, what is the expected impact on equilibrium income?
a) A large increase in income.
b) A small increase in income.
c) No change in income.
d) A decrease in income.
Correct Answer: d) A decrease in income.
248. **Investment and Business Confidence**:
Question: In the IS-LM model, if business confidence decreases significantly, what is the likely effect on the IS curve?
a) The IS curve shifts to the right.
b) The IS curve shifts to the left.
c) The IS curve steepens.
d) The IS curve flattens.
Correct Answer: b) The IS curve shifts to the left.
249. **Interest Rate Sensitivity and Consumption**:
Question: In the IS-LM model, if households become highly sensitive to changes in interest rates when making consumption decisions, how does this affect the IS curve?
a) The IS curve becomes steeper.
b) The IS curve becomes flatter.
c) The IS curve shifts to the right.
d) The IS curve shifts to the left.
Correct Answer: c) The IS curve shifts to the right.
250. **Money Supply Elasticity and Central Bank Policy**:
Question: In the IS-LM model, if the central bank conducts open market operations to purchase long-term government bonds, what effect does this have on the money supply and interest rates?
a) Money supply increases, interest rates rise.
b) Money supply increases, interest rates fall.
c) Money supply decreases, interest rates rise.
d) Money supply decreases, interest rates fall.
Correct Answer: b) Money supply increases, interest rates fall.
251. **Policy Mix and Fiscal Policy Dominance**:
Question: In the IS-LM model, if fiscal policy is dominant, what is the likely outcome when the government decreases government spending and the central bank increases the money supply?
a) Income rises, interest rates rise.
b) Income falls, interest rates fall.
c) Income falls, interest rates rise.
d) Income rises, interest rates fall.
Correct Answer: d) Income rises, interest rates fall.
252. **Fiscal Policy and Tax Changes**:
Question: If the government decreases government spending and increases taxes in the IS-LM model, what is the expected outcome for equilibrium income and interest rates?
a) Income rises, interest rates rise.
b) Income falls, interest rates fall.
c) Income falls, interest rates rise.
d) Income rises, interest rates fall.
Correct Answer: c) Income falls, interest rates rise.
253. **Investment and Technological Advancements**:
Question: In the IS-LM model, if there is a sudden decrease in technological advancements leading to lower expected returns on investment, what happens to the IS curve?
a) The IS curve shifts to the right.
b) The IS curve shifts to the left.
c) The IS curve steepens.
d) The IS curve flattens.
Correct Answer: b) The IS curve shifts to the left.
254. **Income and Money Demand**:
Question: In the LM curve of the IS-LM model, if the income elasticity of money demand is negative, what happens to the LM curve?
a) The LM curve shifts to the right.
b) The LM curve shifts to the left.
c) The LM curve becomes steeper.
d) The LM curve becomes flatter.
Correct Answer: b) The LM curve shifts to the left.
255. **Monetary Policy and Interest Rate Targeting**:
Question: In the IS-LM model, if the central bank decreases the target interest rate, what effect does this have on the money supply and interest rates?
a) Money supply increases, interest rates rise.
b) Money supply increases, interest rates fall.
c) Money supply decreases, interest rates rise.
d) Money supply decreases, interest rates fall.
Correct Answer: b) Money supply increases, interest rates fall.
256. **Policy Mix and
Monetary Policy Dominance**:
Question: In the IS-LM model, if monetary policy is dominant, what is the likely outcome when the central bank decreases the money supply and the government decreases government spending?
a) Income rises, interest rates rise.
b) Income falls, interest rates fall.
c) Income falls, interest rates rise.
d) Income rises, interest rates fall.
Correct Answer: c) Income falls, interest rates rise.
257. **Interest Rate Sensitivity and Consumption**:
Question: In the IS-LM model, if households become very insensitive to changes in interest rates when making consumption decisions, how does this affect the IS curve?
a) The IS curve becomes steeper.
b) The IS curve becomes flatter.
c) The IS curve shifts to the right.
d) The IS curve shifts to the left.
Correct Answer: b) The IS curve becomes flatter.
258. **Money Supply Elasticity and Central Bank Policy**:
Question: In the IS-LM model, if the central bank conducts open market operations to sell short-term government bonds, what effect does this have on the money supply and interest rates?
a) Money supply increases, interest rates rise.
b) Money supply increases, interest rates fall.
c) Money supply decreases, interest rates rise.
d) Money supply decreases, interest rates fall.
Correct Answer: c) Money supply decreases, interest rates rise.
259. **Fiscal Policy and Government Spending Multiplier**:
Question: In the IS-LM model, if the government decreases government spending while the marginal propensity to consume (MPC) is low, what is the expected impact on equilibrium income?
a) A large increase in income.
b) A small increase in income.
c) No change in income.
d) A decrease in income.
Correct Answer: c) No change in income.
260. **Investment and Business Confidence**:
Question: In the IS-LM model, if business confidence decreases significantly, what is the likely effect on the IS curve?
a) The IS curve shifts to the right.
b) The IS curve shifts to the left.
c) The IS curve steepens.
d) The IS curve flattens.
Correct Answer: b) The IS curve shifts to the left.
261. **Interest Rate Sensitivity and Consumption**:
Question: In the IS-LM model, if households become highly insensitive to changes in interest rates when making consumption decisions, how does this affect the IS curve?
a) The IS curve becomes steeper.
b) The IS curve becomes flatter.
c) The IS curve shifts to the right.
d) The IS curve shifts to the left.
Correct Answer: c) The IS curve shifts to the right.
262. **Money Supply Elasticity and Central Bank Policy**:
Question: In the IS-LM model, if the central bank conducts open market operations to purchase long-term government bonds, what effect does this have on the money supply and interest rates?
a) Money supply increases, interest rates rise.
b) Money supply increases, interest rates fall.
c) Money supply decreases, interest rates rise.
d) Money supply decreases, interest rates fall.
Correct Answer: b) Money supply increases, interest rates fall.
263. **Policy Mix and Fiscal Policy Dominance**:
Question: In the IS-LM model, if fiscal policy is dominant, what is the likely outcome when the government decreases government spending and the central bank increases the money supply?
a) Income rises, interest rates rise.
b) Income falls, interest rates fall.
c) Income falls, interest rates rise.
d) Income rises, interest rates fall.
Correct Answer: d) Income rises, interest rates fall.
264. **Fiscal Policy and Tax Changes**:
Question: If the government decreases government spending and decreases taxes in the IS-LM model, what is the expected outcome for equilibrium income and interest rates?
a) Income rises, interest rates rise.
b) Income falls, interest rates fall.
c) Income falls, interest rates rise.
d) Income rises, interest rates fall.
Correct Answer: d) Income rises, interest rates fall.
265. **Investment and Technological Advancements**:
Question: In the IS-LM model, if there is a sudden decrease in technological advancements leading to lower expected returns on investment, what happens to the IS curve?
a) The IS curve shifts to the right.
b) The IS curve shifts to the left.
c) The IS curve steepens.
d) The IS curve flattens.
Correct Answer: b) The IS curve shifts to the left.
266. **Income and Money Demand**:
Question: In the LM curve of the IS-LM model, if the income elasticity of money demand is negative, what happens to the LM curve?
a) The LM curve shifts to the right.
b) The LM curve shifts to the left.
c) The LM curve becomes steeper.
d) The LM curve becomes flatter.
Correct Answer: b) The LM curve shifts to the left.
267. **Monetary Policy and Interest Rate Targeting**:
Question: In the IS-LM model, if the central bank decreases the target interest rate, what effect does this have on the money supply and interest rates?
a) Money supply increases, interest rates rise.
b) Money supply increases, interest rates fall.
c) Money supply decreases, interest rates rise.
d) Money supply decreases, interest rates fall.
Correct Answer: b) Money supply increases, interest rates fall.
268. **Policy Mix and Monetary Policy Dominance**:
Question: In the IS-LM model, if monetary policy is dominant, what is the likely outcome when the central bank decreases the money supply and the government decreases government spending?
a) Income rises, interest rates rise.
b) Income falls, interest rates fall.
c) Income falls, interest rates rise.
d) Income rises, interest rates fall.
Correct Answer: c) Income falls, interest rates rise.
269. **Interest Rate Sensitivity and Consumption**:
Question: In the IS-LM model, if households become very insensitive to changes in interest rates when making consumption decisions, how does this affect the IS curve?
a) The IS curve becomes steeper.
b) The IS curve becomes flatter.
c) The IS curve shifts to the right.
d) The IS curve shifts to the left.
Correct Answer: b) The IS curve becomes flatter.
270. **Money Supply Elasticity and Central Bank Policy**:
Question: In the IS-LM model, if the central bank conducts open market operations to sell short-term government bonds, what effect does this have on the money supply and interest rates?
a) Money supply increases, interest rates rise.
b) Money supply increases, interest rates fall.
c) Money supply decreases, interest rates rise.
d) Money supply decreases, interest rates fall.
Correct Answer: c) Money supply decreases, interest rates rise.
271. **Fiscal Policy and Government Spending Multiplier**:
Question: In the IS-LM model, if the government decreases government spending while the marginal propensity to consume (MPC) is low, what is the expected impact on equilibrium income?
a) A large increase in income.
b) A small increase in income.
c) No change in income.
d) A decrease in income.
Correct Answer: c) No change in income.
272. **Investment and Business Confidence**:
Question: In the IS-LM model, if business confidence decreases significantly, what is the likely effect on the IS curve?
a) The IS curve shifts to the right.
b) The IS curve shifts to the left.
c) The IS curve steepens.
d) The IS curve flattens.
Correct Answer: b) The IS curve shifts to the left.
273. **Interest Rate Sensitivity and Consumption**:
Question: In the IS-LM model, if households become highly insensitive to changes in interest rates when making consumption decisions, how does this affect the IS curve?
a) The IS curve becomes steeper.
b) The IS curve becomes flatter.
c) The IS curve shifts to the right.
d) The IS curve shifts to the left.
Correct Answer: c) The IS curve shifts to the right.
274. **Money Supply Elasticity and Central Bank Policy**:
Question: In the IS-LM model, if the central bank conducts open market operations to purchase long-term government bonds, what effect does this have on the money supply and interest rates?
a) Money supply increases, interest rates rise.
b) Money supply increases, interest rates fall.
c) Money supply decreases, interest rates rise.
d) Money supply decreases, interest rates fall.
Correct Answer: b) Money supply increases, interest rates fall.
275. **Policy Mix and Fiscal Policy Dominance**:
Question: In the IS-LM model, if fiscal policy is dominant, what is the likely outcome when the government decreases government spending and the central bank increases the money supply?
a) Income rises, interest rates rise.
b) Income falls, interest rates fall.
c) Income falls, interest rates rise.
d) Income rises, interest rates fall.
Correct Answer: d) Income rises, interest rates fall.
276. **Fiscal Policy and Tax Changes**:
Question: If the government decreases government spending and decreases taxes in the IS-LM model, what is the expected outcome for equilibrium income and interest rates?
a) Income rises, interest rates rise.
b) Income falls, interest rates fall.
c) Income falls, interest rates rise.
d) Income rises, interest rates fall.
Correct Answer: c) Income falls, interest rates rise.
277. **Investment and Technological Advancements**:
Question: In the IS-LM model, if there is a sudden decrease in technological advancements leading to lower expected returns on investment, what happens to the IS curve?
a) The IS curve shifts to the right.
b) The IS curve shifts to the left.
c) The IS curve steepens.
d) The IS curve flattens.
Correct Answer: b) The IS curve shifts to the left.
278. **Income and Money Demand**:
Question: In the LM curve of the IS-LM model, if the income elasticity of money demand is negative, what happens to the LM curve?
a) The LM curve shifts to the right.
b) The LM curve shifts to the left.
c) The LM curve becomes steeper.
d) The LM curve becomes flatter.
Correct Answer: b) The LM curve shifts to the left.
279. **Monetary Policy and Interest Rate Targeting**:
Question: In the IS-LM model, if the central bank decreases the target interest rate, what effect does this have on the money supply and interest rates?
a) Money supply increases, interest rates rise.
b) Money supply increases, interest rates fall.
c) Money supply decreases, interest rates rise.
d) Money supply decreases, interest rates fall.
Correct Answer: b) Money supply increases, interest rates fall.
280. **Policy Mix and Monetary Policy Dominance**:
Question: In the IS-LM model, if monetary policy is dominant, what is the likely outcome when the central bank decreases the money supply and the government decreases government spending?
a)
Income rises, interest rates rise.
b) Income falls, interest rates fall.
c) Income falls, interest rates rise.
d) Income rises, interest rates fall.
Correct Answer: c) Income falls, interest rates rise.
281. **Interest Rate Sensitivity and Consumption**:
Question: In the IS-LM model, if households become very insensitive to changes in interest rates when making consumption decisions, how does this affect the IS curve?
a) The IS curve becomes steeper.
b) The IS curve becomes flatter.
c) The IS curve shifts to the right.
d) The IS curve shifts to the left.
Correct Answer: b) The IS curve becomes flatter.
282. **Money Supply Elasticity and Central Bank Policy**:
Question: In the IS-LM model, if the central bank conducts open market operations to sell short-term government bonds, what effect does this have on the money supply and interest rates?
a) Money supply increases, interest rates rise.
b) Money supply increases, interest rates fall.
c) Money supply decreases, interest rates rise.
d) Money supply decreases, interest rates fall.
Correct Answer: c) Money supply decreases, interest rates rise.
283. **Fiscal Policy and Government Spending Multiplier**:
Question: In the IS-LM model, if the government decreases government spending while the marginal propensity to consume (MPC) is high, what is the expected impact on equilibrium income?
a) A large increase in income.
b) A small increase in income.
c) No change in income.
d) A decrease in income.
Correct Answer: b) A small increase in income.
284. **Investment and Business Confidence**:
Question: In the IS-LM model, if business confidence decreases significantly, what is the likely effect on the IS curve?
a) The IS curve shifts to the right.
b) The IS curve shifts to the left.
c) The IS curve steepens.
d) The IS curve flattens.
Correct Answer: b) The IS curve shifts to the left.
285. **Interest Rate Sensitivity and Consumption**:
Question: In the IS-LM model, if households become highly sensitive to changes in interest rates when making consumption decisions, how does this affect the IS curve?
a) The IS curve becomes steeper.
b) The IS curve becomes flatter.
c) The IS curve shifts to the right.
d) The IS curve shifts to the left.
Correct Answer: c) The IS curve shifts to the right.
286. **Money Supply Elasticity and Central Bank Policy**:
Question: In the IS-LM model, if the central bank conducts open market operations to purchase long-term government bonds, what effect does this have on the money supply and interest rates?
a) Money supply increases, interest rates rise.
b) Money supply increases, interest rates fall.
c) Money supply decreases, interest rates rise.
d) Money supply decreases, interest rates fall.
Correct Answer: b) Money supply increases, interest rates fall.
287. **Policy Mix and Fiscal Policy Dominance**:
Question: In the IS-LM model, if fiscal policy is dominant, what is the likely outcome when the government decreases government spending and the central bank increases the money supply?
a) Income rises, interest rates rise.
b) Income falls, interest rates fall.
c) Income falls, interest rates rise.
d) Income rises, interest rates fall.
Correct Answer: d) Income rises, interest rates fall.
288. **Fiscal Policy and Tax Changes**:
Question: If the government decreases government spending and decreases taxes in the IS-LM model, what is the expected outcome for equilibrium income and interest rates?
a) Income rises, interest rates rise.
b) Income falls, interest rates fall.
c) Income falls, interest rates rise.
d) Income rises, interest rates fall.
Correct Answer: d) Income rises, interest rates fall.
289. **Investment and Technological Advancements**:
Question: In the IS-LM model, if there is a sudden decrease in technological advancements leading to lower expected returns on investment, what happens to the IS curve?
a) The IS curve shifts to the right.
b) The IS curve shifts to the left.
c) The IS curve steepens.
d) The IS curve flattens.
Correct Answer: b) The IS curve shifts to the left.
290. **Income and Money Demand**:
Question: In the LM curve of the IS-LM model, if the income elasticity of money demand is negative, what happens to the LM curve?
a) The LM curve shifts to the right.
b) The LM curve shifts to the left.
c) The LM curve becomes steeper.
d) The LM curve becomes flatter.
Correct Answer: b) The LM curve shifts to the left.
291. **Monetary Policy and Interest Rate Targeting**:
Question: In the IS-LM model, if the central bank decreases the target interest rate, what effect does this have on the money supply and interest rates?
a) Money supply increases, interest rates rise.
b) Money supply increases, interest rates fall.
c) Money supply decreases, interest rates rise.
d) Money supply decreases, interest rates fall.
Correct Answer: b) Money supply increases, interest rates fall.
292. **Policy Mix and Monetary Policy Dominance**:
Question: In the IS-LM model, if monetary policy is dominant, what is the likely outcome when the central bank decreases the money supply and the government decreases government spending?
a) Income rises, interest rates rise.
b) Income falls, interest rates fall.
c) Income falls, interest rates rise.
d) Income rises, interest rates fall.
Correct Answer: c) Income falls, interest rates rise.
293. **Interest Rate Sensitivity and Consumption**:
Question: In the IS-LM model, if households become very insensitive to changes in interest rates when making consumption decisions, how does this affect the IS curve?
a) The IS curve becomes steeper.
b) The IS curve becomes flatter.
c) The IS curve shifts to the right.
d) The IS curve shifts to the left.
Correct Answer: b) The IS curve becomes flatter.
294. **Money Supply Elasticity and Central Bank Policy**:
Question: In the IS-LM model, if the central bank conducts open market operations to sell short-term government bonds, what effect does this have on the money supply and interest rates?
a) Money supply increases, interest rates rise.
b) Money supply increases, interest rates fall.
c) Money supply decreases, interest rates rise.
d) Money supply decreases, interest rates fall.
Correct Answer: c) Money supply decreases, interest rates rise.
295. **Fiscal Policy and
Government Spending Multiplier**:
Question: In the IS-LM model, if the government decreases government spending while the marginal propensity to consume (MPC) is high, what is the expected impact on equilibrium income?
a) A large increase in income.
b) A small increase in income.
c) No change in income.
d) A decrease in income.
Correct Answer: b) A small increase in income.
296. **Investment and Business Confidence**:
Question: In the IS-LM model, if business confidence decreases significantly, what is the likely effect on the IS curve?
a) The IS curve shifts to the right.
b) The IS curve shifts to the left.
c) The IS curve steepens.
d) The IS curve flattens.
Correct Answer: b) The IS curve shifts to the left.
297. **Interest Rate Sensitivity and Consumption**:
Question: In the IS-LM model, if households become highly sensitive to changes in interest rates when making consumption decisions, how does this affect the IS curve?
a) The IS curve becomes steeper.
b) The IS curve becomes flatter.
c) The IS curve shifts to the right.
d) The IS curve shifts to the left.
Correct Answer: c) The IS curve shifts to the right.
298. **Money Supply Elasticity and Central Bank Policy**:
Question: In the IS-LM model, if the central bank conducts open market operations to purchase long-term government bonds, what effect does this have on the money supply and interest rates?
a) Money supply increases, interest rates rise.
b) Money supply increases, interest rates fall.
c) Money supply decreases, interest rates rise.
d) Money supply decreases, interest rates fall.
Correct Answer: b) Money supply increases, interest rates fall.
299. **Policy Mix and Fiscal Policy Dominance**:
Question: In the IS-LM model, if fiscal policy is dominant, what is the likely outcome when the government decreases government spending and the central bank increases the money supply?
a) Income rises, interest rates rise.
b) Income falls, interest rates fall.
c) Income falls, interest rates rise.
d) Income rises, interest rates fall.
Correct Answer: d) Income rises, interest rates fall.
300. **Fiscal Policy and Tax Changes**:
Question: If the government decreases government spending and decreases taxes in the IS-LM model, what is the expected outcome for equilibrium income and interest rates?
a) Income rises, interest rates rise.
b) Income falls, interest rates fall.
c) Income falls, interest rates rise.
d) Income rises, interest rates fall.
Correct Answer: d) Income rises, interest rates fall.
That's the last of the questions! If you have more or need further assistance, feel free to ask.
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