ECO (Group E)

PROBLEM SET 8-9: MACROECONOMICS II

1. In the IS-LM model with expectations, a permanent expansionist monetary policy

(current and future) makes that the current IS and the LM curves shift to:
a) IS to the right and LM downwards.
b) IS to the left and LM downwards.
c) IS to the right and LM upwards.
d) IS to the left and LM upwards.

2. In the IS-LM model with expectations, suppose an announcement from the government
of a future increase in taxes. Consequently:
a) There is an increase in the current and future incomes.
b) There is a decrease in the current and future incomes.
c) There is an increase in the current income but a decrease in the future income.
d) There is a decrease in the current income but an increase in the future income.

3. In the IS-LM model with expectations, suppose that the central bank reduces the current
interest rate and simultaneously announces an increase in the future. Consequently, the
current income level:
a) Increases.
b) Decreases.
c) Do not change.
d) It is undetermined.

4. In the IS-LM model with expectations, the central bank announces an increase in the
future interest rate, while the government reduces public spending now. Consequently:
a) There is an increase in the current and future incomes.
b) There is a reduction in the current and future incomes.
c) There is an increase in the current income but a decrease in the future.
d) There is a reduction in the current income but an increase in the future.

5. In the IS-LM model with expectations, the government has announced a future
reduction in taxes. If the central bank wants the current and future incomes not to change
because of that policy, it should announce:
a) An increase in the current and future interest rates.
b) A reduction in the current and future interest rates.
c) An increase in the current interest rate and a reduction in the future.
d) A reduction in the current interest rate and an increase in the future.

6. In the IS-LM model with expectations, the central bank announces an increase in the
future interest rate. Mark the correct government policy to avoid that monetary policy
affects the current and future incomes:
 a) An increase in the current and future taxes.
b) An increase in the current and future public spending.
c) An increase in the future public spending.
d) A reduction in the current taxes.

7. In the IS-LM model with expectations, mark which of the followings shocks increase
the shape of the yield curve.
a) A future expansive monetary policy.
b) A future contractive monetary policy.
c) A permanent (current and future) expansive monetary policy.
d) A permanent (current and future) contractive monetary policy.

8. In the IS-LM model with expectations, the central bank announces an increase in the
future interest rate and, simultaneously, the government increases the current taxes. In the
final equilibrium, the current consumption:
a) Increases.
b) Decreases.
c) Does not change.
d) It is undetermined.

9. In the IS-LM model with expectations, the government announces a reduction in the
future taxes and, simultaneously, the central bank reacts to keep fixed the current income.
Consequently:
a) There is an increase in the current consumption.
b) There is an increase in the current investment.
c) The current investment does not change.
d) The current consumption it is undetermined.