Question 1

Sometimes,changes in monetary policy and/or fiscal policy are intended to offset changes to aggregate demand over which policymakers have little or no control.

Accepted Answer

A) True 
 B)False

Question 2

According to a 2009 article in The Economist,the multiplier effect and crowding-out effect would exactly offset each other when the economy is

Accepted Answer

A)   operating at full capacity.
B)   in recession.
C)   experiencing zero inflation.
D)   experiencing high rates of inflation.E) None of the above
F) A) and D)

Question 3

Suppose the MPC is 0.60.Assume there are no crowding out or investment accelerator effects.If the government increases expenditures by $200 billion,then by how much does aggregate demand shift to the right? If the government decreases taxes by $200 billion,then by how much does aggregate demand shift to the right?

Accepted Answer

A)   $300 billion and $180 billion
B)   $300 billion and $300 billion
C)   $500 billion and $300 billion
D)   $500 billion and $500 billionE) A) and B)
F) B) and C)

Question 4

Automatic stabilizers

Accepted Answer

A)   increase the problems that lags cause in using fiscal policy as a stabilization tool.
B)   are changes in taxes or government spending that increase aggregate demand without requiring policy makers to act when the economy goes into recession.
C)   are changes in taxes or government spending that policy makers quickly agree to when the economy goes into recession.
D)   All of the above are correct.E) B) and C)
F) All of the above

Question 5

A 2009 article in The Economist noted that some studies have provided evidence indicating that multipliers are

Accepted Answer

A)   smaller in closed economies than in open economies.
B)   larger in closed economies than in open economies.
C)   smaller in capitalist economies than in socialist economies.
D)   larger in capitalist economies than in socialist economies.E) B) and D)
F) B) and C)

Question 6

Figure 21-6.On the left-hand graph,MS represents the supply of money and MD represents the demand for money;on the right-hand graph,AD represents aggregate demand.The usual quantities are measured along the axes of both graphs.
1 to AD2 if there were no crowding out;the AD curve actually shifts from AD1 to AD3 with crowding out.Finally,assume the horizontal distance between the curves AD1 and AD3 is $30 billion.The extent of crowding out,for any particular level of the price level,is A)  $25 billion. B)  $30 billion. C)  $45 billion. D)  $60 billion." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 21-6.Suppose the multiplier is 3 and the government increases its purchases by $25 billion.Also,suppose the AD curve would shift from AD1 to AD2 if there were no crowding out;the AD curve actually shifts from AD1 to AD3 with crowding out.Finally,assume the horizontal distance between the curves AD1 and AD3 is $30 billion.The extent of crowding out,for any particular level of the price level,is

Accepted Answer

A)   $25 billion.
B)   $30 billion.
C)   $45 billion.
D)   $60 billion.E) None of the above
F) A) and B)

Question 7

According to liquidity preference theory,if the quantity of money demanded is greater than the quantity supplied,then the interest rate will

Accepted Answer

A)   increase and the quantity of money demanded will decrease.
B)   increase and the quantity of money demanded will increase.
C)   decrease and the quantity of money demanded will decrease.
D)   decrease and the quantity of money demanded will increase.E) A) and C)
F) A) and D)

Question 8

If a $1,000 increase in income leads to a $750 increase in consumption expenditures,then the marginal propensity to consume is

Accepted Answer

A)   0.75 and the multiplier is 1 1/3.
B)   0.75 and the multiplier is 4.
C)   0.25 and the multiplier is 1 1/3.
D)   0.25 and the multiplier is 4.E) C) and D)
F) B) and D)

Question 9

In which of the following cases would the quantity of money demanded be largest?

Accepted Answer

A)   r = 0.03,P = 1.2
B)   r = 0.03,P = 1.3
C)   r = 0.04,P = 1.2
D)   r = 0.05,P = 0.9E) A) and B)
F) All of the above

Question 10

In order to simplify the equation for the multiplier to its familiar,relatively simple form,we make use of the

Accepted Answer

A)   assumption that increases in government purchases have no effect on consumer spending.
B)   assumption that the feedback effects associated with changes in government purchases become negligible after two or three rounds of spending have occurred.
C)   empirical evidence that points to a value of aboutfor the MPC.
D)   fact that the multiplier effect is represented by an infinite geometric series.E) All of the above
F) A) and D)

Question 11

To reduce the effects of crowding out caused by an increase in government expenditures,the Federal Reserve could

Accepted Answer

A)   increase the money supply by buying bonds .
B)   increase the money supply by selling bonds.
C)   decrease the money supply by buying bonds
D)   increase the money supply by selling bonds .E) A) and B)
F) B) and C)

Question 12

The interest-rate effect

Accepted Answer

A)   depends on the idea that increases in interest rates decrease the quantity of goods and services demanded.
B)   depends on the idea that increases in interest rates decrease the quantity of goods and services supplied.
C)   is responsible for the downward slope of the money-demand curve.
D)   is the least important reason,in the case of the United States,for the downward slope of the aggregate-demand curve.E) A) and D)
F) C) and D)

Question 13

Monetary policy

Accepted Answer

A)   can be implemented quickly and most of its impact on aggregate demand occurs very soon after policy is implemented.
B)   can be implemented quickly,but most of its impact on aggregate demand occurs months after policy is implemented.
C)   cannot be implemented quickly,but once implemented most of its impact on aggregate demand occurs very soon afterward.
D)   cannot be implemented quickly and most of its impact on aggregate demand occurs months after policy is implemented.E) A) and B)
F) B) and C)

Question 14

If the marginal propensity to consume is 6/7,then the multiplier is 7.

Accepted Answer

A) True 
 B)False

Question 15

According to liquidity preference theory,the opportunity cost of holding money is

Accepted Answer

A)   the interest rate on bonds.
B)   the inflation rate.
C)   the cost of converting bonds to a medium of exchange.
D)   the difference between the inflation rate and the interest rate on bonds.E) B) and C)
F) B) and D)

Question 16

Suppose aggregate demand shifts to the left and policymakers want to stabilize output.What can they do?

Accepted Answer

A)   repeal an investment tax credit or increase the money supply
B)   repeal an investment tax credit or decrease the money supply
C)   institute an investment tax credit or increase the money supply
D)   institute an investment tax credit or decrease the money supplyE) A) and B)
F) A) and C)

Question 17

In the short run,

Accepted Answer

A)   the price level alone adjusts to balance the supply and demand for money.
B)   output responds to changes in the aggregate demand for goods and services.
C)   changes in the money supply cause a proportional change in the price level.
D)   increases in the money supply shift the aggregate supply curve causing output to rise.E) C) and D)
F) A) and D)

Question 18

During recessions,unemployment insurance payments tend to rise.

Accepted Answer

A) True 
 B)False

Question 19

The change in aggregate demand that results from fiscal expansion changing the interest rate is called the

Accepted Answer

A)   multiplier effect.
B)   crowding-out effect.
C)   accelerator effect.
D)   Ricardian equivalence effect.E) None of the above
F) A) and C)

Question 20

According to liquidity preference theory,the money-supply curve would shift if the Fed

Accepted Answer

A)   engaged in open-market transactions.
B)   changed the discount rate.
C)   changed the reserve requirement.
D)   did any of the above.E) None of the above
F) A) and D)

Exam 34: The Influence of Monetary and Fiscal Policy on Aggregate Demand

If a $1,000 increase in income leads to a $750 increase in consumption expenditures,then the marginal propensity to consume is

Correct Answer
verified

Correct Answer
verified

During recessions,unemployment insurance payments tend to rise.

Correct Answer
verified

Suppose aggregate demand shifts to the left and policymakers want to stabilize output.What can they do?

Correct Answer
verified

In order to simplify the equation for the multiplier to its familiar,relatively simple form,we make use of the

Correct Answer
verified

Sometimes,changes in monetary policy and/or fiscal policy are intended to offset changes to aggregate demand over which policymakers have little or no control.

Correct Answer
verified

According to liquidity preference theory,if the quantity of money demanded is greater than the quantity supplied,then the interest rate will

Correct Answer
verified

If the marginal propensity to consume is 6/7,then the multiplier is 7.

Correct Answer
verified

Automatic stabilizers

Correct Answer
verified

The change in aggregate demand that results from fiscal expansion changing the interest rate is called the

Correct Answer
verified

According to a 2009 article in The Economist,the multiplier effect and crowding-out effect would exactly offset each other when the economy is

Correct Answer
verified

In the short run,

Correct Answer
verified

Correct Answer
verified

To reduce the effects of crowding out caused by an increase in government expenditures,the Federal Reserve could

Correct Answer
verified

A 2009 article in The Economist noted that some studies have provided evidence indicating that multipliers are

Correct Answer
verified

In which of the following cases would the quantity of money demanded be largest?

Correct Answer
verified

The interest-rate effect

Correct Answer
verified

Monetary policy

Correct Answer
verified

According to liquidity preference theory,the money-supply curve would shift if the Fed

Correct Answer
verified

According to liquidity preference theory,the opportunity cost of holding money is

Correct Answer
verified

Exam 34: The Influence of Monetary and Fiscal Policy on Aggregate Demand

If a $1,000 increase in income leads to a $750 increase in consumption expenditures,then the marginal propensity to consume is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

During recessions,unemployment insurance payments tend to rise.

Correct AnswerverifiedShow Answer

Suppose aggregate demand shifts to the left and policymakers want to stabilize output.What can they do?

Correct AnswerverifiedShow Answer

In order to simplify the equation for the multiplier to its familiar,relatively simple form,we make use of the

Correct AnswerverifiedShow Answer

Sometimes,changes in monetary policy and/or fiscal policy are intended to offset changes to aggregate demand over which policymakers have little or no control.

Correct AnswerverifiedShow Answer

According to liquidity preference theory,if the quantity of money demanded is greater than the quantity supplied,then the interest rate will

Correct AnswerverifiedShow Answer

If the marginal propensity to consume is 6/7,then the multiplier is 7.

Correct AnswerverifiedShow Answer

Automatic stabilizers

Correct AnswerverifiedShow Answer

The change in aggregate demand that results from fiscal expansion changing the interest rate is called the

Correct AnswerverifiedShow Answer

According to a 2009 article in The Economist,the multiplier effect and crowding-out effect would exactly offset each other when the economy is

Correct AnswerverifiedShow Answer

In the short run,

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

To reduce the effects of crowding out caused by an increase in government expenditures,the Federal Reserve could

Correct AnswerverifiedShow Answer

A 2009 article in The Economist noted that some studies have provided evidence indicating that multipliers are

Correct AnswerverifiedShow Answer

In which of the following cases would the quantity of money demanded be largest?

Correct AnswerverifiedShow Answer

The interest-rate effect

Correct AnswerverifiedShow Answer

Monetary policy

Correct AnswerverifiedShow Answer

According to liquidity preference theory,the money-supply curve would shift if the Fed

Correct AnswerverifiedShow Answer

According to liquidity preference theory,the opportunity cost of holding money is

Correct AnswerverifiedShow Answer

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