Question 1

The interest rate would fall and the quantity of money demanded would

Accepted Answer

A)  increase if there were a surplus in the money market.
B)  increase if there were a shortage in the money market.
C)  decrease if there were a surplus in the money market.
D)  decrease if there were a shortage in the money market.E) A) and C)
F) B) and D)

Question 2

Which of the following sequences best explains the negative slope of the aggregate-demand curve?

Accepted Answer

A)  price level ↑ ⇒ demand for money ↑ ⇒ equilibrium interest rate ↑ ⇒ quantity of goods and services demanded ↓
B)  price level ↑ ⇒ demand for money ↓ ⇒ equilibrium interest rate ↑ ⇒ quantity of goods and services demanded ↓
C)  price level ↓ ⇒ demand for money ↓ ⇒ equilibrium interest rate ↑ ⇒ quantity of goods and services demanded ↓
D)  price level ↑ ⇒ equilibrium interest rate ↑ ⇒ demand for money ↑ ⇒ quantity of goods and services demanded ↓E) A) and B)
F) None of the above

Question 3

Suppose the Federal Reserve lowers the target on the interest rate in the Federal Funds market. The Federal Reserve will _____ the money supply and aggregate demand will _____.

Accepted Answer

The answer of Suppose the Federal Reserve lowers the target...

Question 4

Assume the multiplier is 5 and that the crowding-out effect is $30 billion. An increase in government purchases of $20 billion will shift the aggregate-demand curve to the

Accepted Answer

A)  right by $130 billion.
B)  right by $70 billion.
C)  right by $50 billion.
D)  right by $10 billion.E) B) and D)
F) All of the above

Question 5

Other things equal, in the short run a lower price level leads households to

Accepted Answer

A)  increase consumption and firms to buy more capital goods.
B)  increase consumption and firms to buy fewer capital goods.
C)  decrease consumption and firms to buy more capital goods.
D)  decrease consumption and firms to buy fewer capital goods.E) B) and D)
F) None of the above

Question 6

What actions could be taken to stabilize output in response to a large decrease in U.S. net exports?

Accepted Answer

A)  increase taxes or increase the money supply
B)  increase taxes or decrease the money supply
C)  decrease taxes or increase the money supply
D)  decrease taxes or decrease the money supplyE) A) and B)
F) A) and D)

Question 7

A tax cut shifts the aggregate demand curve the farthest if

Accepted Answer

A)  the MPC is large and if the tax cut is permanent.
B)  the MPC is large and if the tax cut is temporary.
C)  the MPC is small and if the tax cut is permanent.
D)  the MPC is small and if the tax cut is temporary.E) All of the above
F) A) and D)

Question 8

Which of the following shifts aggregate demand to the right?

Accepted Answer

A)  The price level rises.
B)  The price level falls.
C)  The money supply falls.
D)  None of the above is correct.E) All of the above
F) None of the above

Question 9

Suppose there is an increase in government spending. To stabilize output, the Federal Reserve would

Accepted Answer

A)  increase government spending.
B)  increase the money supply.
C)  decrease government spending.
D)  decrease the money supply.E) All of the above
F) A) and B)

Question 10

What is the value of the multiplier if the marginal propensity to consume is 0.5?

Accepted Answer

The answer of What is the value of the multiplier...

Question 11

For a country such as the U.S., the wealth effect exerts a very important influence on the slope of the aggregate-demand curve, since U.S. wealth is large relative to wealth in most other countries.

Accepted Answer

A) True 
 B)False

Question 12

Figure 34-2. 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.
.  
-Refer to Figure 34-2. Which of the following quantities is held constant as we move from one point to another on either graph?

Accepted Answer

A)  the nominal interest rate
B)  the quantity of money demanded
C)  investment
D)  the expected rate of inflationE) A) and B)
F) All of the above

Question 13

An decrease in taxes shifts aggregate demand

Accepted Answer

A)  to the right. The larger the multiplier is, the farther it shifts.
B)  to the right. The larger the multiplier is, the less it shifts.
C)  to the left. The larger the multiplier is, the farther it shifts.
D)  to the left. The larger the multiplier is, the less it shifts.E) A) and B)
F) C) and D)

Question 14

A reduction in U.S net exports would shift U.S. aggregate demand

Accepted Answer

A)  rightward. In an attempt to stabilize the economy, the government could increase expenditures.
B)  rightward. In an attempt to stabilize the economy, the government could decrease expenditures.
C)  leftward. In an attempt to stabilize the economy, the government could increase expenditures.
D)  leftward. In an attempt to stabilize the economy, the government could decrease expenditures.E) B) and C)
F) None of the above

Question 15

If the Fed increases the money supply,

Accepted Answer

A)  the interest rate increases, which tends to raise stock prices.
B)  the interest rate increases, which tends to reduce stock prices.
C)  the interest rate decreases, which tends to raise stock prices.
D)  the interest rate decreases, which tends to reduce stock prices.E) A) and B)
F) A) and C)

Question 16

The theory of liquidity preference illustrates the principle that

Accepted Answer

A)  monetary policy can be described either in terms of the money supply or in terms of the interest rate.
B)  monetary policy can be described either in terms of the exchange rate or the interest rate.
C)  monetary policy must be described in terms of the money supply.
D)  monetary policy must be described in terms of the interest rate.E) A) and B)
F) A) and C)

Question 17

If the Federal Reserve increases the money supply, then initially there is a

Accepted Answer

A)  shortage in the money market, so people will want to sell bonds.
B)  shortage in the money market, so people will want to buy bonds.
C)  surplus in the money market, so people will want to sell bonds.
D)  surplus in the money market, so people will want to buy bonds.E) A) and B)
F) None of the above

Question 18

Figure 34-4. On the figure, MS represents money supply and MD represents money demand. 3. Let Y3 represent the corresponding quantity of goods and services demanded, and let P3 represent the corresponding price level. Starting from this situation, if the Federal Reserve decreases the money supply and if the price level remains at P3, then A) there will be an increase in the equilibrium quantity of goods and services demanded. B) there will be a decrease in the equilibrium interest rate. C) the aggregate-demand curve will shift to the right. D) fewer firms will choose to borrow to build new factories and buy new equipment." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 34-4. Suppose the current equilibrium interest rate is r3. Let Y3 represent the corresponding quantity of goods and services demanded, and let P3 represent the corresponding price level. Starting from this situation, if the Federal Reserve decreases the money supply and if the price level remains at P3, then

Accepted Answer

A)  there will be an increase in the equilibrium quantity of goods and services demanded.
B)  there will be a decrease in the equilibrium interest rate.
C)  the aggregate-demand curve will shift to the right.
D)  fewer firms will choose to borrow to build new factories and buy new equipment.E) A) and C)
F) B) and C)

Question 19

While a television news reporter might state that "Today the Fed raised the federal funds rate from 1 percent to 1.25 percent," a more precise account of the Fed's action would be as follows:

Accepted Answer

A)  "Today the Fed told its bond traders to conduct open-market operations in such a way that the equilibrium federal funds rate would increase to 1.25 percent."
B)  "Today the Fed raised the discount rate by a quarter of a percentage point, and this action will force the federal funds rate to rise by the same amount."
C)  "Today the Fed took steps to increase the money supply by an amount that is sufficient to increase the federal funds rate to 1.25 percent."
D)  "Today the Fed took a step toward expanding aggregate demand, and this was done by raising the federal funds rate to 1.25 percent."E) None of the above
F) All of the above

Question 20

The theory of liquidity preference was developed by Irving Fisher.

Accepted Answer

A) True 
 B)False

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

What actions could be taken to stabilize output in response to a large decrease in U.S. net exports?

Correct Answer
verified

While a television news reporter might state that "Today the Fed raised the federal funds rate from 1 percent to 1.25 percent," a more precise account of the Fed's action would be as follows:

Correct Answer
verified

A tax cut shifts the aggregate demand curve the farthest if

Correct Answer
verified

The theory of liquidity preference was developed by Irving Fisher.

Correct Answer
verified

Suppose the Federal Reserve lowers the target on the interest rate in the Federal Funds market. The Federal Reserve will _ the money supply and aggregate demand will _.

Correct Answer
verified

Assume the multiplier is 5 and that the crowding-out effect is $30 billion. An increase in government purchases of $20 billion will shift the aggregate-demand curve to the

Correct Answer
verified

Which of the following shifts aggregate demand to the right?

Correct Answer
verified

Suppose there is an increase in government spending. To stabilize output, the Federal Reserve would

Correct Answer
verified

Correct Answer
verified

If the Fed increases the money supply,

Correct Answer
verified

What is the value of the multiplier if the marginal propensity to consume is 0.5?

Correct Answer
verified

Other things equal, in the short run a lower price level leads households to

Correct Answer
verified

An decrease in taxes shifts aggregate demand

Correct Answer
verified

Correct Answer
verified

If the Federal Reserve increases the money supply, then initially there is a

Correct Answer
verified

The interest rate would fall and the quantity of money demanded would

Correct Answer
verified

For a country such as the U.S., the wealth effect exerts a very important influence on the slope of the aggregate-demand curve, since U.S. wealth is large relative to wealth in most other countries.

Correct Answer
verified

The theory of liquidity preference illustrates the principle that

Correct Answer
verified

A reduction in U.S net exports would shift U.S. aggregate demand

Correct Answer
verified

Which of the following sequences best explains the negative slope of the aggregate-demand curve?

Correct Answer
verified

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

What actions could be taken to stabilize output in response to a large decrease in U.S. net exports?

Correct AnswerverifiedShow Answer

While a television news reporter might state that "Today the Fed raised the federal funds rate from 1 percent to 1.25 percent," a more precise account of the Fed's action would be as follows:

Correct AnswerverifiedShow Answer

A tax cut shifts the aggregate demand curve the farthest if

Correct AnswerverifiedShow Answer

The theory of liquidity preference was developed by Irving Fisher.

Correct AnswerverifiedShow Answer

Suppose the Federal Reserve lowers the target on the interest rate in the Federal Funds market. The Federal Reserve will _____ the money supply and aggregate demand will _____.

Correct AnswerverifiedShow Answer

Assume the multiplier is 5 and that the crowding-out effect is $30 billion. An increase in government purchases of $20 billion will shift the aggregate-demand curve to the

Correct AnswerverifiedShow Answer

Which of the following shifts aggregate demand to the right?

Correct AnswerverifiedShow Answer

Suppose there is an increase in government spending. To stabilize output, the Federal Reserve would

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If the Fed increases the money supply,

Correct AnswerverifiedShow Answer

What is the value of the multiplier if the marginal propensity to consume is 0.5?

Correct AnswerverifiedShow Answer

Other things equal, in the short run a lower price level leads households to

Correct AnswerverifiedShow Answer

An decrease in taxes shifts aggregate demand

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If the Federal Reserve increases the money supply, then initially there is a

Correct AnswerverifiedShow Answer

The interest rate would fall and the quantity of money demanded would

Correct AnswerverifiedShow Answer

For a country such as the U.S., the wealth effect exerts a very important influence on the slope of the aggregate-demand curve, since U.S. wealth is large relative to wealth in most other countries.

Correct AnswerverifiedShow Answer

The theory of liquidity preference illustrates the principle that

Correct AnswerverifiedShow Answer

A reduction in U.S net exports would shift U.S. aggregate demand

Correct AnswerverifiedShow Answer

Which of the following sequences best explains the negative slope of the aggregate-demand curve?

Correct AnswerverifiedShow Answer

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Suppose the Federal Reserve lowers the target on the interest rate in the Federal Funds market. The Federal Reserve will _ the money supply and aggregate demand will _.

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