the economics of money, banking, and financial markets

690 #

© 2014 Pearson Canada Inc.#

22.4 Understanding the IS Curve

1. 
   

   If the interest rate falls, other things being equal, investment spending will ____.
   A) fall
   B) rise
   C) either rise, fall, or remain unchanged
   D) not be affected
   Answer: B
   Diff: 2 Type: MC Page Ref: 547
   Skill: Recall
   Objective List: 22.1 Utilize the Keynesian cross model for the determination of aggregate output

   
   


2. 
   

   When the interest rate rises, ____.
   A) planned investment falls
   B) planned investment rises
   C) planned investment will be unaffected
   D) equilibrium income increases
   Answer: A
   Diff: 2 Type: MC Page Ref: 547
   Skill: Recall
   Objective List: 22.1 Utilize the Keynesian cross model for the determination of aggregate output

   
   


3. 
   

   When the interest rate is ____, ____ investments in physical capital will earn more
   than the cost of borrowed funds, so planned investment spending is ____.
   A) high; few; high
   B) high; few; low
   C) low; few; high
   D) low; many; low
   E) high; many; high
   Answer: B
   Diff: 2 Type: MC Page Ref: 547 - 548
   Skill: Recall
   Objective List: 22.1 Utilize the Keynesian cross model for the determination of aggregate output

   
   


4. 
   

   When interest rates rise in the United States (with the price level fixed), the value of the dollar
   ____, domestic goods become ____ expensive, and net exports ____.
   A) falls; less; fall
   B) falls; more; rise
   C) rises; more; fall
   D) rises; less; fall
   Answer: C
   Diff: 2 Type: MC Page Ref: 547 - 548
   Skill: Recall
   Objective List: 22.1 Utilize the Keynesian cross model for the determination of aggregate output