宏观经济学（英文版） chapter 9.docx

Macroeconomics (Hubbard et aL)Chapter 9 IS-MP: A Short-Run Macroeconomic Model9.1 The IS Curve: The Relationship Between Real Interest Rates and Aggregate Expenditure1) Equilibrium in the goods market occurs whereA) real GDP equals nominal GDP.B) aggregate expenditure equals autonomous consumption.C) autonomous consumption equals induced consumption.D) aggregate expenditure equals real GDP.Answer: DDiff: 1 Page Ref: 304Topic: Equilibrium in the Goods MarketObjective: LOI: Explain how the IS curve represents the relationship between the real interest rate and aggregate expenditure.Special Feature: noneAACSB: Reflective Thinking Skills*: Recurring2) Other things equal, if planned investment spending is greater than actual investment spending, then aggregate expenditure will be real GDP and inventories will.A) greater than; riseB) greater than; fallC) less than; riseD) less than; fallAnswer: BDiff: 2 Page Ref: 304-305Topic: Equilibrium in the Goods MarketObjective: LOI: Explain how the IS curve represents the relationship between the real interest rate and aggregate expenditure.Special Feature: noneAACSB: Reflective Thinking Skills*: Recurring3) Other things equal, if planned investment spending is less than actual investment spending, then aggregate expenditure will be real GDP and employment will.A) greater than; increaseB) greater than; decreaseC) less than; increaseD) less than; decreaseAnswer: DDiff: 2 Page Ref: 304-305Topic: Equilibrium in the Goods MarketObjective: LOI: Explain how the IS curve represents the relationship between the real interest rate and aggregate expenditure.Special Feature: none21) Refer to Figure 9.3. A positive demand shock accompanied by a decrease in the real interest rate is best represented by in panel (a) and in panel (b).A) a shift from AE2 to AE3； a movement from point B to point CB) a shift from AE3 to AE% a shift from IS2 to ISC) a shift from AE to AE a movement from point A to point BD) a shift from AE to AE3; a movement from point A to point CAnswer: DDiff: 3 Page Ref: 310-311Topic: Shifts of the IS CurveObjective: LOI: Explain how the IS curve represents the relationship between the real interest rate and aggregate expenditure.Special Feature: noneAACSB: Analytic Skills*: Recurringand real GDP will22) Other things equal, when the real interest rate rises, C, I and NX relative to potential GDP.;decreaseincreaseincrease; increaseincrease; decreaseAnswer: ADiff: 2 Page Ref: 311-312Topic: The IS Curve and the Output GapObjective: LOI: Explain how the IS curve represents the relationship between the real interest rate and aggregate expenditure.Special Feature: noneAACSB: Reflective Thinking Skills*: Recurring23) Other things equal, when the real interest rate falls, C, I and NX and the output gap will;decrease ;increaseincrease; increaseincrease; decreaseAnswer: CDiff: 2 Page Ref: 311-312Topic: The IS Curve and the Output GapObjective: LOI: Explain how the IS curve represents the relationship between the real interest rate and aggregate expenditure.Special Feature: noneAACSB: Reflective Thinking Skills*: Recurring24) Suppose the economy is initially in equilibrium at potential GDP = $100 billion and investment increases by $8 billion. If the MPC in this economy is 0.8, what will happen to real GDP? Draw an aggregate expenditure graph showing this change in investment and real GDP.Answer:If the MPC = 0.8, the multiplier is (1 / 1-0.8)= 5. When investment increases by $8 billion, real GDP will increase by $8 billion x 5 = $40 billion.The increase in investment will shift the AE curve up by $8 billion, from AE to AE2. Real GDP will increase by $40 billion, from yP = $100 billion to 丫2 二 $140 billion.Diff: 2 Page Ref: 307Topic: The Multiplier EffectObjective: LOI: Explain how the IS curve represents the relationship between the real interest rate and aggregate expenditure.Special Feature: noneAACSB: Analytic Skills*: Recurring25) Suppose that the marginal propensity to consume is 0.75.a. If the government decreases spending by $500 billion, what is the change in output?b. If the government decreases taxes by $500 billion, what is the change in output?c. If the government decreases transfer payments by $500 billion, what is the change in output?d. If the government decreases spending by $500 billion and at the same time decreases taxes by $500 billion, what is the change in output?Answer:If the MPC = 0.75, the autonomous expenditure multiplier = 1 / (1 - 0.75) = 4.If the MPC = 0.75, the tax multiplier = -0.75 / (1 - 0.75) = -3.If the MPC = 0.75, the transfer payment multiplier = 0.75 / (1 - 0.75) = 3.e. If the government decreases spending by $500 billion, output will decrease by $500 billion x 4 = $2 trillion.f. If taxes are decreased by $500 billion, output will increase by -$500 billion x -3 = +$1.5 trillion.g. If transfer payments are decreased by $500 billion, output will decrease by $500 billion x 3 = $1.5 trillion.h. If the government decreases spending by $500 billion at the same time as decreasing taxes by $500billion, output will change by (-$500 billion x 4) + (-$500 billion x -3) = -$500 billion )a decrease of $500 billion), the same amount as the initial decrease in government spending.Diff: 2 Page Ref: 307Topic: The Multiplier EffectObjective: LOI: Explain how the IS curve represents the relationship between the real interest rate and aggregate expenditure.Special Feature: noneAACSB: Analytic Skills*: Recurring26) For each of the following changes, identify whether there will be a shift in the IS curve or a movement along the IS curve. In each case identify the direction of the movement or shift.a. The real interest rate decreases.b. The government decreases tax rates.c. Government spending decreases.d. Investors become optimistic about future profitability.Answer:a. A decrease in the real interest rate causes a movement down the IS curve.b. A decreases in taxes will shift the IS curve to the right.c. A decrease in government spending will shift the IS curve to the left.d. More optimistic investors will cause the IS curve to shift to the right.Diff: 2 Page Ref: 309-311Topic: Constructing the IS CurveObjective: LOI: Explain how the IS curve represents the relationship between the real interest rate and aggregate expenditure.Special Feature: noneAACSB: Analytic Skills*: Recurring27) Explain how an increase in the real interest rate, with no changes to other factors that affect aggregate expenditure, impacts aggregate expenditure and how this interest rate increase is shown on the IS curve. How would this change if there was a negative demand shock with no change in the real interest rate? Show both situations using graphs for aggregate expenditure and the IS curve.Answer: An increase in the real interest rate with no changes to other factors that affect aggregate expenditure will shift the aggregate expenditure curve down from AE to AE2, decreasing real output from Y to 丫2. This is represented by a movement up the IS curve from point A to point B.A negative demand shock with no change in the real interest rate will also shift the aggregate expenditure curve down from AE to AE2, decreasing real output from Y to Y2- With no change in the real interest rate, a negative demand shock will shift the IS curve to the left from IS to IS2-Diff: 2 Page Ref: 309-311Topic: Constructing the IS CurveObjective: LOI: Explain how the IS curve represents the relationship between the real interest rate and aggregate expenditure.Special Feature: noneAACSB: Analytic Skills*: Recurring9.2 The Monetary Policy Curve: The Relationship Between the Central Bank's Target Interest Rate and Output1) Which of the following equations best represents the long-term real interest rate? The long-term real interest rate =A) the short-term real interest rate + the term structure effect + the default-risk premium + the expected rate of inflationB) the short-term nominal interest rate + the term structure effect + the default-risk premium - the expected rate of inflationC) the long-term nominal interest rate + the term structure effect + the default-risk premium - the expected rate of inflationD) the short-term nominal interest rate - the term structure effect - the default-risk premium + the expected rate of inflation Answer: BDiff: 1 Page Ref: 314Topic: The Link Between the Short-Term Nominal Interest Rate and Long-Term Real Interest Rate Objective: LO2: Use the monetary policy, MP, curve to show how the interest rate set by the central bank helps to determine output.Special Feature: noneAACSB: Reflective Thinking Skills*: Recurring2) The Fed has control over the long-term real interest rate provided that three variables remain unchanged. These three variables include all of the following exceptA) the expected rate of inflation.B) the default premium.C) term structure effects.D) the short-term real interest rate.Answer: DDiff: 1 Page Ref: 314Topic: The Link Between the Short-Term Nominal Interest Rate and Long-Term Real Interest Rate Objective: LO2: Use the monetary policy, MP, curve to show how the interest rate set by the central bank helps to determine output.Special Feature: noneAACSB: Reflective Thinking Skills*: Recurring3) If the short-term nominal interest rate is 3.4%, the term structure effect is 1.2%, the default-risk premium is 1.4%, and the expected rate of inflation is 2.7%, the long-term real interest rate will be A)-1.9%.B) 0.5%.C) 3.3%.D) 8.7%.Answer: CDiff: 2 Page Ref: 314Topic: The Link Between the Short-Term Nominal Interest Rate and Long-Term Real Interest Rate Objective: LO2: Use the monetary policy, MP, curve to show how the interest rate set by the central bank helps to determine output.Special Feature: noneAACSB: Analytic Skills*: Recurring4) If the long-term real interest rate is 5.1%, the term structure effect is 2.0%, the default-risk premium is 1.7%, and the expected rate of inflation is 3.3%, the short-term nominal interest rate will beA)-1.9%.B) 4.7%.C) 5.5%.D) 12.1%.Answer: BDiff: 2 Page Ref: 314Topic: The Link Between the Short-Term Nominal Interest Rate and Long-Term Real Interest Rate Objective: LO2: Use the monetary policy, MP, curve to show how the interest rate set by the central bank helps to determine output.Special Feature: noneAACSB: Analytic SkillsE) Recurring5) Assume the long-term nominal interest rate is 7% and the expected inflation rate is 3%. If the Fed increases the money supply and as a result, the expected inflation rate increases to 5%, then based on the Fisher effect, the long-term real interest rate will remain at 4%. increase to 6%. fall to 3%.increase to 9%.Answer: ADiff: 2 Page Ref: 315Topic: The Link Between the Short-Term Nominal Interest Rate and Long-Term Real Interest Rate Objective: LO2: Use the monetary policy, MP, curve to show how the interest rate set by the central bank helps to determine output.Special Feature: noneAACSB: Analytic Skills*: Recurring6) Assume the long-term real interest rate is 4% and the expected inflation rate is 5%. If the Fed decreases the money supply and as a result, the expected inflation rate decreases to 2%, then based on the Fisher effect, the long-term real interest rate will and the long-term nominal interest ratewill.A) fall to 4%; rise to 7%B) remain at 4%; fall to 6%C) fall to 1 %; fall to 6%D) fall to 6%; remain at -1%Answer: BDiff: 2 Page Ref: 315Topic: The Link Between the Short-Term Nominal Interest Rate and Long-Term Real Interest Rate Objective: LO2: Use the monetary policy, MP, curve to show how the interest rate set by the central bank helps to determine output.Special Feature: noneAACSB: Analytic SkillsFigure 9.6*: RecurringYy Y2 Output gap, Y (percent deviation from potential GDP)y7) Refer to Figure 9.6. Suppose the economy's equilibrium starts out with an output gap of 1, and real yGDP increases so the output gap increases to 2 If the Fed keeps the money supply constant, money demand will and the nominal interest rate will.A) increase; increaseB) increase; decreaseC) increase; remain constantD) remain constant; remain constantAnswer: ADiff: 2 Page Ref: 316-317Topic: Deriving the MP Curve Using the Money Market ModelObjective: LO2: Use the monetary policy, MP, curve to show how the interest rate set by the central bank helps to determine output.Special Feature: noneAACSB: Analytic Skills*: Recurringy8) Refer to Figure 9.6. Suppose the economy's equilibrium starts out with an output gap of 1, and real yGDP increases so the output gap increases to 2 If the Fed wants to keep the interest rate at the target, the money demand curve will and the money supply curve will.A) shift from MD to MD2； shift from MS to MS2B) shift from MD? to MD shift from MS2 to MSC) remain at MD remain at MSD) remain at MD2 remain at MS?Answer: ADiff: 2 Page Ref: 316-317Topic: Deriving the MP Curve Using the Money Market ModelObjective: LO2: Use the monetary policy, MP, curve to show how the interest rate set by the central bank helps to determine output.Special Feature: noneAACSB: Analytic Skills*: Recurringy9) Refer to Figure 9.6. Suppose the economy's equilibrium starts out with an output gap of 1, and real yGDP increases so the output gap increases to 2- If the Fed acts to keep the short-term nominal interest rate at the target and the term structure effect, the default-risk premium, and the expected inflation rate remain constant, then the long-term nominal interest rate will A) increase.B) decrease.C) remain constant.D) be indeterminant, since the Fed has no control over long-term rates.Answer: CDiff: 2 Page Ref: 316-317Topic: Deriving the MP Curve Using the Money Market ModelObjective: LO2: Use the monetary policy, MP, curve to show how the interest rate set by the central bank helps to determine output.Special Feature: noneAACSB: Analytic Skills*: RecurringFigure 9.7Real interest rate, rMP、Outputgap, Y(percent deviationfrom potential GDP)10) Refer to Figure 9.7. A shift from MP to MP? will occur ifA) the Fed decreases its target for the short-term nominal interest rate.B) the term structure effect increases.C) the default-risk premium decreases.D) the expected inflation rate increases.Answer: BDiff: 2 Page Ref: 317-318Topic: Shifts of the MP CurveObjective: LO2: Use the monetary policy, MP, curve to show how the interest rate set by the central bank helps to determine output.Special Feature: noneAACSB: Analytic Skills*: Recurring11) Refer to Figure 9.7. A shift from MP to MP? will occur ifA) i