Question 1

Suppose that the Federal reserve is concerned about the effects of falling stock prices on the economy. What could it do?

Accepted Answer

A)  buy bonds to raise the interest rate
B)  buy bonds to lower the interest rate
C)  sell bonds to raise the interest rate
D)  Sell bonds to raise the interest rateE) B) and C)
F) All of the above

Question 2

It is likely that a constitutional amendment that required the government always to run a balanced budget would

Accepted Answer

A)  contribute to a more stable level of output.
B)  mitigate the crowding-out effect.
C)  eliminate the economy's automatic stabilizers.
D)  All of the above are correct.E) A) and B)
F) B) and D)

Question 3

If taxes

Accepted Answer

A)  increase, then consumption increases, and aggregate demand shifts leftward.
B)  increase, then consumption decreases, and aggregate demand shifts rightward.
C)  decrease, then consumption increases, and aggregate demand shifts rightward.
D)  decrease, then consumption decreases, and aggregate demand shifts leftward.E) A) and D)
F) C) and D)

Question 4

In response to the sharp decline in stock prices in October 1987, the Federal Reserve

Accepted Answer

A)  increased the money supply and increased interest rates.
B)  increased the money supply and decreased interest rates.
C)  decreased the money supply and increased interest rates.
D)  decreased the money supply and decreased interest rates.E) None of the above
F) B) and C)

Question 5

An implication of the Employment Act of 1946 is that the government should respond to changes in the private economy to stabilize aggregate demand.

Accepted Answer

A) True 
 B)False

Question 6

The interest rate that the Federal Reserve pays banks on the reserves they hold is called the

Accepted Answer

A)  open-market rate.
B)  discount rate.
C)  preference rate.
D)  None of the above are correct.E) C) and D)
F) None of the above

Question 7

The theory of liquidity preference is most helpful in understanding

Accepted Answer

A)  the wealth effect.
B)  the exchange-rate effect.
C)  the interest-rate effect.
D)  misperceptions theory.E) B) and C)
F) All of the above

Question 8

_____ are changes in fiscal policy that stimulate aggregate demand when the economy goes into recession without policymakers having to take any deliberate action.

Accepted Answer

Automatic ...

Question 9

According to classical macroeconomic theory,

Accepted Answer

A)  output is determined by the supplies of capital and labor and the available production technology.
B)  for any given level of output, the interest rate adjusts to balance the supply of, and demand for, loanable funds.
C)  given output and the interest rate, the price level adjusts to balance the supply of, and demand for, money.
D)  All of the above are correct.E) A) and B)
F) B) and C)

Question 10

Suppose there are both multiplier and crowding out effects but without any accelerator effects. An increase in government expenditures would

Accepted Answer

A)  shift aggregate demand right by a larger amount than the increase in government expenditures.
B)  shift aggregate demand right by the same amount as the increase in government expenditures.
C)  shift aggregate demand right by a smaller amount than the increase in government expenditures.
D)  Any of the above outcomes are possible.E) All of the above
F) A) and D)

Question 11

Figure 34-12 
-Refer to Figure 34-12. Suppose the multiplier is 5 and the economy is currently at point A. To stabilize output at $1000, the government should _____ purchases by $_____.

Accepted Answer

The answer of Figure 34-12 
-Refer to Figure 34-12. Suppose...

Question 12

Opponents of active stabilization policy

Accepted Answer

A)  generally don't believe, even in theory, that fiscal policy can stabilize the economy.
B)  generally agree that fiscal policy has no impact in the long run.
C)  believe some effects of monetary policy may be long-lived.
D)  think the Fed should simply try to fine tune the economy.E) None of the above
F) B) and D)

Question 13

A significant lag for monetary policy is the time it takes to for a change in the money supply to change the economy. A significant lag for fiscal policy is the time it takes to pass legislation authorizing it.

Accepted Answer

A) True 
 B)False

Question 14

If the Fed conducts open-market sales, which of the following quantities increase(s) ?

Accepted Answer

A)  interest rates, prices, and investment spending
B)  interest rates and prices, but not investment spending
C)  interest rates and investment, but not prices
D)  interest rates, but not investment or pricesE) B) and C)
F) All of the above

Question 15

In a certain economy, when income is $400, consumer spending is $325. The value of the multiplier for this economy is 3.33. It follows that, when income is $450, consumer spending is

Accepted Answer

A)  $360. For this economy, an initial increase of $50 in consumer spending translates into a $266.67 increase in aggregate demand.
B)  $360. For this economy, an initial increase of $50 in consumer spending translates into a $166.50 increase in aggregate demand.
C)  $341.67. For this economy, an initial increase of $50 in consumer spending translates into a $266.67 increase in aggregate demand.
D)  $341.67. For this economy, an initial increase of $50 in consumer spending translates into a $166.25 increase in aggregate demand.E) A) and B)
F) A) and C)

Question 16

If the MPC = 0.5 and there is no crowding out, then the spending multiplier is​

Accepted Answer

A)  ​2
B)  ​1
C)  ​4
D)  ​0.5E) A) and C)
F) A) and B)

Question 17

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) A) and C)
F) All of the above

Question 18

Suppose investment spending falls. To offset the change in output the Federal Reserve could

Accepted Answer

A)  increase the money supply. This increase would also move the price level closer to its value before the decline in investment spending.
B)  increase the money supply. However, this increase would move the price level farther from its value before the decline in investment spending.
C)  decrease the money supply. This decrease would also move the price level closer to its value before the decline in investment spending.
D)  decrease the money supply. However, this increase would move the price level farther from its value before the decline in investment spending.E) All of the above
F) B) and C)

Question 19

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 C)
F) B) and C)

Question 20

Figure 34-3. 
-Refer to Figure 34-3. What quantity is represented by the downward-sloping line on the left-hand graph?

Accepted Answer

A)  the supply of money
B)  the demand for money
C)  the rate of inflation
D)  Aggregate Demand.E) B) and C)
F) None of the above

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

If the Fed conducts open-market sales, which of the following quantities increase(s) ?

Correct AnswerverifiedShow Answer

Suppose investment spending falls. To offset the change in output the Federal Reserve could

Correct AnswerverifiedShow Answer

A significant lag for monetary policy is the time it takes to for a change in the money supply to change the economy. A significant lag for fiscal policy is the time it takes to pass legislation authorizing it.

Correct AnswerverifiedShow Answer

Suppose that the Federal reserve is concerned about the effects of falling stock prices on the economy. What could it do?

Correct AnswerverifiedShow Answer

An implication of the Employment Act of 1946 is that the government should respond to changes in the private economy to stabilize aggregate demand.

Correct AnswerverifiedShow Answer

If taxes

Correct AnswerverifiedShow Answer

_____ are changes in fiscal policy that stimulate aggregate demand when the economy goes into recession without policymakers having to take any deliberate action.

Correct AnswerverifiedAutomatic ...View AnswerShow Answer

Suppose there are both multiplier and crowding out effects but without any accelerator effects. An increase in government expenditures would

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Opponents of active stabilization policy

Correct AnswerverifiedShow Answer

Figure 34-12 -Refer to Figure 34-12. Suppose the multiplier is 5 and the economy is currently at point A. To stabilize output at $1000, the government should _____ purchases by $_____.

Correct AnswerverifiedShow Answer

Figure 34-3. -Refer to Figure 34-3. What quantity is represented by the downward-sloping line on the left-hand graph?

Correct AnswerverifiedShow Answer

In response to the sharp decline in stock prices in October 1987, the Federal Reserve

Correct AnswerverifiedShow Answer

The theory of liquidity preference is most helpful in understanding

Correct AnswerverifiedShow Answer

According to classical macroeconomic theory,

Correct AnswerverifiedShow Answer

It is likely that a constitutional amendment that required the government always to run a balanced budget would

Correct AnswerverifiedShow Answer

The interest rate that the Federal Reserve pays banks on the reserves they hold is called the

Correct AnswerverifiedShow Answer

If the MPC = 0.5 and there is no crowding out, then the spending multiplier is​

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In a certain economy, when income is $400, consumer spending is $325. The value of the multiplier for this economy is 3.33. It follows that, when income is $450, consumer spending is

Correct AnswerverifiedShow Answer

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Automatic ...
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Figure 34-12 -Refer to Figure 34-12. Suppose the multiplier is 5 and the economy is currently at point A. To stabilize output at $1000, the government should _ purchases by $_.

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If the MPC = 0.5 and there is no crowding out, then the spending multiplier is

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