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24.2Â Â The IS Curve 1) The IS curve has a positive slope because a(n) __________ in the interest rate leads to a(n) __________ in desired investment and this leads to an increase in GDP. A) increase; increase B) increase; decrease C) decrease; increase D) decrease; decrease 2) The IS curve has a positive slope because a(n) __________ in the interest rate leads to a(n) __________ in desired investment and this leads to a decrease in GDP. A) increase; increase B) increase; decrease C) decrease; increase D) decrease; decrease 3) In the IS curve, at __________ income levels, saving is __________, so the interest rate must be __________ to expand investment. A) higher; smaller; lower B) higher; larger; higher C) higher; larger; lower D) lower; larger; lower 4) Which of the following is an equilibrium condition for the goods market? A) MV = PQ B) Desired expenditure = total production C) Money demand = money supply D) IS = LM 5) Which of the following is an equilibrium condition for the goods market? A) M = kPQ B) Desired saving and desired investment C) Money demand = money supply D) IS = LM 6) The IS curve shows a series of equilibrium points in the goods market for various levels of A) investment and interest rates. B) investment and money supply. C) income and interest rates. D) inflation and unemployment. 7) An increase in the interest rate causes A) movement up the IS curve. B) movement down the LM curve. C) the IS curve to shift to the left. D) the LM curve to shift to the right. 8) A decrease in the interest rate causes A) movement up the IS curve. B) movement down the LM curve. C) the IS curve to shift to the left. D) the LM curve to shift to the right. 9) The slope of the IS curve will be flatter the __________ is the sensitivity of investment to a unit change in the interest rate and the __________ is marginal propensity to save. A) greater; larger B) greater; smaller C) less; larger D) less; smaller 10) The slope of the IS curve will be steeper the __________ is the sensitivity of investment to a unit change in the interest rate and the __________ is marginal propensity to save. A) greater; larger B) greater; smaller C) less; larger D) less; smaller

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