Chapter 10/11 Summary

A decrease in the real money supply, other things being equal, will shift the LM curve:
a.upward and to the left.
b.upward and to the right.
c.downward and to the left.
d.downward and to the right.
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In the Keynesian-cross analysis, assume that the analysis of taxes is changed so that taxes, T , are made a function of income, as in T = T + tY , where T and t are parameters of the tax code and t is positive but less than 1. As compared to a case where t is zero, the multiplier for government purchases in this case will:
a. be equal to 1.
b. be bigger.
c. not change.
d. be smaller.
In the Keynesian-cross model, fiscal policy has a multiplying effect on income because fiscal policy:
a. increases the amount of money in the economy.
b. changes income, which changes consumption, which further changes income.
c. is government spending and, therefore, more powerful than private spending.
d. changes the interest rate.