Question 1

When there is an excess supply of money,

Accepted Answer

A)  people will try to get rid of money causing interest rates to rise. Investment increases.
B)  people will try to get rid of money causing interest rates to fall. Investment decreases.
C)  people will try to get rid of money causing interest rates to fall. Investment increases.
D)  people will try to get rid of money causing interest rates to rise. Investment decreases.E) A) and B)
F) C) and D)

Question 2

Liquidity preference theory is most relevant to the

Accepted Answer

A)  short run and supposes that the price level adjusts to bring money supply and money demand into balance.
B)  short run and supposes that the interest rate adjusts to bring money supply and money demand into balance.
C)  long run and supposes that the price level adjusts to bring money supply and money demand into balance.
D)  long run and supposes that the interest rate adjusts to bring money supply and money demand into balance.E) A) and B)
F) All of the above

Question 3

Figure 34-6. 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 r2, then A) there would be no crowding out. B) the full multiplier effect of the increase in government purchases would be realized. C) the AD curves that actually apply, before and after the change in government purchases, would be separated horizontally by the distance equal to the multiplier times the change in government purchases. D) All of the above are correct." class="answers-bank-image d-inline" rel="preload" > 1 to r2, then A) there would be no crowding out. B) the full multiplier effect of the increase in government purchases would be realized. C) the AD curves that actually apply, before and after the change in government purchases, would be separated horizontally by the distance equal to the multiplier times the change in government purchases. D) All of the above are correct." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 34-6. Suppose the graphs are drawn to show the effects of an increase in government purchases. If it were not for the increase in r from r1 to r2, then

Accepted Answer

A)  there would be no crowding out.
B)  the full multiplier effect of the increase in government purchases would be realized.
C)  the AD curves that actually apply, before and after the change in government purchases, would be separated horizontally by the distance equal to the multiplier times the change in government purchases.
D)  All of the above are correct.E) A) and B)
F) A) and C)

Question 4

An increase in the U.S. interest rate

Accepted Answer

A)  raises the opportunity cost of holding dollars.
B)  induces households to increase consumption.
C)  shifts money demand to the right.
D)  leads to a depreciation of the U.S. dollar.E) All of the above
F) A) and D)

Question 5

Scenario 34-1. Take the following information as given for a small, imaginary economy:
• When income is $10,000, consumption spending is $6,500.
• When income is $11,000, consumption spending is $7,250.
-Refer to Scenario 34-1. For this economy, an initial increase of $200 in net exports translates into a(n)

Accepted Answer

A)  $570 increase in aggregate demand when the crowding-out effect is taken into account.
B)  $800 increase in aggregate demand when the crowding-out effect is taken into account.
C)  $1,400 increase in aggregate demand in the absence of the crowding-out effect.
D)  $800 increase in aggregate demand in the absence of the crowding-out effect.E) A) and B)
F) A) and C)

Question 6

According to liquidity preference theory, a decrease in money demand for some reason other than a change in the price level causes

Accepted Answer

A)  the interest rate to fall, so aggregate demand shifts right.
B)  the interest rate to fall, so aggregate demand shifts left.
C)  the interest rate to rise, so aggregate demand shifts right.
D)  the interest rate to rise, so aggregate demand shifts left.E) C) and D)
F) All of the above

Question 7

If the Federal Reserve increases the money supply, then initially people want to

Accepted Answer

A)  sell bonds so the interest rate rises.
B)  sell bonds so the interest rate falls.
C)  buy bonds so the interest rate rises.
D)  buy bonds so the interest rate falls.E) A) and D)
F) A) and C)

Question 8

Assume there is a multiplier effect, some crowding out, and no accelerator effect. An increase in government expenditures changes aggregate demand more,

Accepted Answer

A)  the smaller the MPC and the stronger the influence of income on money demand.
B)  the smaller the MPC and the weaker the influence of income on money demand.
C)  the larger the MPC and the stronger the influence of income on money demand.
D)  the larger the MPC and the weaker the influence of income on money demand.E) B) and C)
F) A) and B)

Question 9

A decrease in taxes ____ aggregate demand through larger _____ by households.

Accepted Answer

increases, consumption

Question 10

To reduce aggregate demand, the government may reduce _____ or increase _____.

Accepted Answer

government...

Question 11

How does a reduction in the money supply by the Fed make owning stocks less attractive?

Accepted Answer

The reduction in the money supply raises...

Question 12

The term crowding-out effect refers to

Accepted Answer

A)  the reduction in aggregate supply that results when a monetary expansion causes the interest rate to decrease.
B)  the reduction in aggregate demand that results when a monetary expansion causes the interest rate to decrease.
C)  the reduction in aggregate demand that results when a fiscal expansion causes the interest rate to increase.
D)  the reduction in aggregate demand that results when a decrease in government spending or an increase in taxes causes the interest rate to increase.E) A) and D)
F) A) and B)

Question 13

Imagine that the government increases its spending by $75 billion. Which of the following by itself would tend to make the change in aggregate demand different from $75 billion?

Accepted Answer

A)  both the multiplier effect and the crowding-out effect
B)  the multiplier effect, but not the crowding-out effect
C)  the crowding-out effect, but not the multiplier effect
D)  neither the crowding out effect nor the multiplier effectE) A) and B)
F) B) and C)

Question 14

Other things the same, during recessions taxes tend to

Accepted Answer

A)  rise. The rise in taxes stimulates aggregate demand.
B)  rise. The rise in taxes contracts aggregate demand.
C)  fall. The fall in taxes stimulates aggregate demand.
D)  fall. The fall in taxes contracts aggregate demand.E) All of the above
F) A) and B)

Question 15

For the U.S. economy, which of the following helps explain the slope of the aggregate-demand curve?

Accepted Answer

A)  An increase in the price level decreases the interest rate.
B)  An increase in the price level increases the interest rate.
C)  An increase in the money supply decreases the interest rate.
D)  An increase in the money supply increases the interest rate.E) A) and D)
F) B) and D)

Question 16

An essential piece of the liquidity preference theory is the demand for money.

Accepted Answer

A) True 
 B)False

Question 17

An increase in government spending on goods to build or repair infrastructure

Accepted Answer

A)  shifts the aggregate demand curve to the right.
B)  has a multiplier effect.
C)  shifts the aggregate supply curve to the right, but this effect is likely more important in the long run.
D)  All of the above are correct.E) A) and B)
F) C) and D)

Question 18

Most recessions and depressions

Accepted Answer

A)  are accurately forecasted.
B)  usually occur with ample advance warning.
C)  cause falling unemployment.
D)  occur with little advance warning.E) A) and B)
F) None of the above D

Question 19

To stabilize output, the Federal Reserve will _____ the money supply when aggregate demand falls.

Accepted Answer

increase

Question 20

If the government faced a balanced budget rule, it would be forced to raise taxes or decrease spending during a recession.​

Accepted Answer

A) True 
 B)False

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

When there is an excess supply of money,

Correct Answer
verified

Liquidity preference theory is most relevant to the

Correct Answer
verified

Correct Answer
verified

An increase in the U.S. interest rate

Correct Answer
verified

Correct Answer
verified

According to liquidity preference theory, a decrease in money demand for some reason other than a change in the price level causes

Correct Answer
verified

If the Federal Reserve increases the money supply, then initially people want to

Correct Answer
verified

Assume there is a multiplier effect, some crowding out, and no accelerator effect. An increase in government expenditures changes aggregate demand more,

Correct Answer
verified

A decrease in taxes aggregate demand through larger _ by households.

Correct Answer
verified
increases, consumption

To reduce aggregate demand, the government may reduce _ or increase _.

Correct Answer
verified
government...
View Answer

How does a reduction in the money supply by the Fed make owning stocks less attractive?

Correct Answer
verified
The reduction in the money supply raises...
View Answer

The term crowding-out effect refers to

Correct Answer
verified

Imagine that the government increases its spending by $75 billion. Which of the following by itself would tend to make the change in aggregate demand different from $75 billion?

Correct Answer
verified

Other things the same, during recessions taxes tend to

Correct Answer
verified

For the U.S. economy, which of the following helps explain the slope of the aggregate-demand curve?

Correct Answer
verified

An essential piece of the liquidity preference theory is the demand for money.

Correct Answer
verified

An increase in government spending on goods to build or repair infrastructure

Correct Answer
verified

Most recessions and depressions

Correct Answer
verified
D

To stabilize output, the Federal Reserve will _____ the money supply when aggregate demand falls.

Correct Answer
verified
increase

If the government faced a balanced budget rule, it would be forced to raise taxes or decrease spending during a recession.

Correct Answer
verified

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

When there is an excess supply of money,

Correct AnswerverifiedShow Answer

Liquidity preference theory is most relevant to the

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

An increase in the U.S. interest rate

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

According to liquidity preference theory, a decrease in money demand for some reason other than a change in the price level causes

Correct AnswerverifiedShow Answer

If the Federal Reserve increases the money supply, then initially people want to

Correct AnswerverifiedShow Answer

Assume there is a multiplier effect, some crowding out, and no accelerator effect. An increase in government expenditures changes aggregate demand more,

Correct AnswerverifiedShow Answer

A decrease in taxes ____ aggregate demand through larger _____ by households.

Correct Answerverifiedincreases, consumption

To reduce aggregate demand, the government may reduce _____ or increase _____.

Correct Answerverifiedgovernment...View AnswerShow Answer

How does a reduction in the money supply by the Fed make owning stocks less attractive?

Correct AnswerverifiedThe reduction in the money supply raises...View AnswerShow Answer

The term crowding-out effect refers to

Correct AnswerverifiedShow Answer

Imagine that the government increases its spending by $75 billion. Which of the following by itself would tend to make the change in aggregate demand different from $75 billion?

Correct AnswerverifiedShow Answer

Other things the same, during recessions taxes tend to

Correct AnswerverifiedShow Answer

For the U.S. economy, which of the following helps explain the slope of the aggregate-demand curve?

Correct AnswerverifiedShow Answer

An essential piece of the liquidity preference theory is the demand for money.

Correct AnswerverifiedShow Answer

An increase in government spending on goods to build or repair infrastructure

Correct AnswerverifiedShow Answer

Most recessions and depressions

Correct AnswerverifiedD

To stabilize output, the Federal Reserve will _____ the money supply when aggregate demand falls.

Correct Answerverifiedincrease

If the government faced a balanced budget rule, it would be forced to raise taxes or decrease spending during a recession.​

Correct AnswerverifiedShow Answer

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A decrease in taxes aggregate demand through larger _ by households.

Correct Answer
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increases, consumption

To reduce aggregate demand, the government may reduce _ or increase _.

Correct Answer
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government...
View Answer

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The reduction in the money supply raises...
View Answer

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D

Correct Answer
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increase

If the government faced a balanced budget rule, it would be forced to raise taxes or decrease spending during a recession.

Correct Answer
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