If investment spending is very sensitive to the interest rate, then:Group of answer choicesthe IS curve should be relatively flatthe IS curve should be relatively steepthe LM curve should be relatively flatthe LM curve should be relatively steepneither the IS nor the LM curve will be affected

A flatter IS curve would necessarily result fromGroup of answer choicesa lower marginal tax rate and a higher interest elasticity of investmenta higher interest elasticity of investment and a flatter planned aggregate expenditure functiona higher marginal propensity to consume and a lower interest sensitivity of investmenta lower interest elasticity of investment and an unchanged planned aggregate expenditure function.

The effectiveness of monetary policy in an IS-LM system increases when Group of answer choicesThe IS curve is flatterThe IS curve is steeperThe multiplier is smallerThe LM starts off at a higher level

Which of the following statements is correct ?Group of answer choicesThe IS relation refers to combinations of real income and the rate of interest consistent with equilibrium in the money market.Points on the IS curve shows how aggregate expenditure varies with the rate of interest when the goods market is not in equilibrium.The slope of the IS curve reflects the sensitivity of consumption and investment to changes in the rate of interest as well as the size of the multiplier.An increase in the marginal propensity to consume would result in a parallel rightward shift of the IS curve.

Which of the following statements is correct?Group of answer choicesA steepening of the yield curve could reflect a belief that the central bank will in the future conduct a more contractionary monetary policy than previously thoughtA flattening of the yield curve could reflect long-term government bonds suddenly being seen as a less attractive investmentThe yield curve reflects the effect of arbitrage in financial markets as well as what the current interest rate is in the overnight marketThe first and third alternatives above are both correct statements while the second alternative is an incorrect statement.

Which of the following statements is FALSE? A) The shape of the yield curve will be strongly influenced by interest rate expectations. B) We can use the term structure to compute the present and future values of a risk-free cash flow over different investment horizons. C) It is important to use a discount rate that matches both the horizon and the risk of the cash flows. D) The yield curve tends to be inverted as the economy comes out of a recession. E) None of the above is false.