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B Com Exam  >  B Com Test  >  Macro Economics  >  Test: Determination of Income through IS & LM Curves - B Com MCQ

Determination of Income through IS & LM Curves - Free MCQ Practice Test


MCQ Practice Test & Solutions: Test: Determination of Income through IS & LM Curves (10 Questions)

You can prepare effectively for B Com Macro Economics with this dedicated MCQ Practice Test (available with solutions) on the important topic of "Test: Determination of Income through IS & LM Curves ". These 10 questions have been designed by the experts with the latest curriculum of B Com 2026, to help you master the concept.

Test Highlights:

  • - Format: Multiple Choice Questions (MCQ)
  • - Duration: 10 minutes
  • - Number of Questions: 10

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Test: Determination of Income through IS & LM Curves - Question 1
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Which of the following best describes the IS-LM curve model in macroeconomics?

Detailed Solution: Question 1

The IS-LM curve model involves analyzing the joint equilibrium of the goods market (IS curve) and the money market (LM curve). The IS curve represents the equilibrium in the goods market by relating output and interest rates, while the LM curve represents the equilibrium in the money market by relating real money balances, interest rates, and income.

Test: Determination of Income through IS & LM Curves - Question 2
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In an open economy, how does an increase in net exports affect the IS curve?

Detailed Solution: Question 2

An increase in net exports leads to a higher aggregate demand for goods, which causes the IS curve to shift to the right. This is because net exports are a component of aggregate demand, and an increase in net exports implies higher demand for domestically produced goods.

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Test: Determination of Income through IS & LM Curves - Question 3
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What is the role of the LM curve in the IS-LM model?

Detailed Solution: Question 3

The LM curve represents the equilibrium in the money market, where the supply of real money balances matches the demand for money, determined by the level of income and the interest rate. The intersection of the IS and LM curves determines the equilibrium level of income and interest rate in the economy.

Test: Determination of Income through IS & LM Curves - Question 4
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In an open economy, how does a depreciation in the real exchange rate affect the IS curve?

Detailed Solution: Question 4

A depreciation in the real exchange rate encourages exports and discourages imports, leading to an increase in net exports. This increase in net exports shifts the IS curve to the right, reflecting the higher aggregate demand for goods resulting from the depreciation.

Test: Determination of Income through IS & LM Curves - Question 5
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What is the effect of an increase in foreign income on an open economy's equilibrium level of income?

Detailed Solution: Question 5

An increase in foreign income leads to higher foreign spending on domestic goods, resulting in an increase in net exports and a shift of the IS curve to the right. This shift leads to a higher equilibrium level of income.

Test: Determination of Income through IS & LM Curves - Question 6
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In the IS-LM model, what happens to the equilibrium level of income if there is a recession in foreign economies?

Detailed Solution: Question 6

A recession in foreign economies reduces their imports, which lowers foreign demand for the open economy's exports. This causes a leftward shift in the IS curve, leading to a decrease in the equilibrium level of income.

Test: Determination of Income through IS & LM Curves - Question 7
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What does the LM curve represent in the IS-LM model?

Detailed Solution: Question 7

The LM curve represents the equilibrium in the money market by showing the combinations of interest rates and income where the demand for money equals the supply of real money balances.

Test: Determination of Income through IS & LM Curves - Question 8
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How does an increase in domestic spending affect the net exports of an open economy?

Detailed Solution: Question 8

An increase in domestic spending raises imports, which reduces net exports. Although domestic spending contributes to higher aggregate demand, a portion of the spending is directed towards imports, causing a decrease in net exports.

Test: Determination of Income through IS & LM Curves - Question 9
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What is the impact of an increase in foreign income on net exports?

Detailed Solution: Question 9

An increase in foreign income leads to higher foreign demand for the open economy's goods, resulting in an increase in exports and higher net exports. This effect stems from the fact that higher foreign income raises the demand for imports, which are produced by the open economy.

Test: Determination of Income through IS & LM Curves - Question 10
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How does a depreciation in the real exchange rate affect net exports?

Detailed Solution: Question 10

A depreciation in the real exchange rate encourages exports and discourages imports, leading to an increase in net exports. This increase in net exports is driven by the improved competitiveness of the open economy's goods in international markets.

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About this B Com Practice Test

This test contains 10 MCQs on Determination of Income through IS & LM Curves with detailed solutions for each question. It is part of the Macro Economics course on EduRev, designed to align with the current B Com syllabus. Each solution explains not just the correct answer but also gives you an understanding of the topic — not just to attempt the question but also help you prepare for the exam with practice.

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