Question 1

The multiplier is equal to MPC / (1 - MPC).

Accepted Answer

A) True 
 B)False

Question 2

If there is excess money supply,what will people do and what happens to the interest rate?

Accepted Answer

A)   People will deposit more into interest-bearing accounts,and the interest rate will fall.
B)   People will deposit more into interest-bearing accounts,and the interest rate will rise.
C)   People will withdraw money from interest-bearing accounts,and the interest rate will fall.
D)   People will withdraw money from interest-bearing accounts,and the interest rate will rise.E) A) and D)
F) B) and C)

Question 3

According to liquidity-preference theory,other things being equal,what does a higher price level lead households to do in the short run?

Accepted Answer

A)   increase residential investment
B)   decrease the amount of cash they want to hold
C)   buy bonds
D)   decrease consumptionE) All of the above
F) B) and D)

Question 4

If at some interest rate the quantity of money demanded is greater than the quantity of money supplied,what will people desire to do and what will happen to the interest rate?

Accepted Answer

A)   People will sell interest-bearing assets,causing the interest rate to decrease.
B)   People will sell interest-bearing assets,causing the interest rate to increase.
C)   People will buy interest-bearing assets,causing the interest rate to decrease.
D)   People will buy interest-bearing assets,causing the interest rate to increase.E) B) and D)
F) A) and C)

Question 5

Suppose that consumers become pessimistic about the future health of the economy,and so cut back on their consumption spending.What will happen to aggregate demand and to output? What might the government have to do to keep output stable?

Accepted Answer

As consumers become pessimistic about th...

Question 6

What is the variable that balances the money demand and supply in the liquidity-preference and the classical theories?

Accepted Answer

A)   the interest rate in both theories
B)   the price level in both theories
C)   the interest rate in the liquidity-preference theory and the price level in the classical theory
D)   the price level in the liquidity-preference theory and the interest rate in the classical theoryE) B) and D)
F) A) and D)

Question 7

What is the most likely effect of an increase in government spending on goods to build or repair infrastructure?

Accepted Answer

A)   It would shift the aggregate-demand curve to the left.
B)   It would shift the long-run aggregate-supply curve to the left.
C)   It would shift the short-run aggregate-supply curve to the left.
D)   It would shift the long run aggregate-supply curve to the right.E) All of the above
F) B) and C)

Question 8

Fiscal policy refers to the idea that aggregate demand is changed by changes in what?

Accepted Answer

A)   the money supply
B)   government spending and taxes
C)   trade policy
D)   interest ratesE) B) and C)
F) A) and D)

Question 9

Which of the following tends to make aggregate demand shift right farther than the amount that government expenditures increase?

Accepted Answer

A)   the crowding-out effect
B)   the multiplier effect
C)   the wealth effect
D)   the investment accelerator effectE) A) and B)
F) C) and D)

Question 10

In a small open economy with a flexible exchange rate,what does a monetary injection cause?

Accepted Answer

A)   It causes the dollar to appreciate.
B)   It causes net exports to decline.
C)   It causes an additional decrease in demand for Canadian-produced goods that is not realized in a closed economy.
D)   It causes a shift of the aggregate demand curve farther to the right than in a closed economy.E) B) and C)
F) B) and D)

Question 11

According to Keynes,what concept did aggregate demand play a key role in explaining?

Accepted Answer

A)   debates by politicians concerning fiscal policy
B)   arbitrary changes in attitudes of households and firms
C)   short-run economic fluctuations
D)   long-run economic fluctuationsE) None of the above
F) A) and B)

Question 12

According to the theory of liquidity preference,how is the money supply affected by the interest rate?

Accepted Answer

A)   inversely
B)   negatively
C)   not affected
D)   directlyE) A) and D)
F) C) and D)

Question 13

In the short run,a decrease in the money supply causes interest rates and aggregate demand to do what?

Accepted Answer

A)   It causes interest rates to increase and aggregate demand to shift right.
B)   It causes interest rates to increase and aggregate demand to shift left.
C)   It causes interest rates to decrease and aggregate demand to shift right.
D)   It causes interest rates to decrease and aggregate demand to shift left.E) B) and C)
F) A) and B)

Question 14

If the stock market crashes,what would be the effect on aggregate demand and how could the Bank of Canada offset those effects?

Accepted Answer

A)   aggregate demand increases; by increasing the money supply
B)   aggregate demand increases; by decreasing the money supply
C)   aggregate demand decreases; by increasing the money supply
D)   aggregate demand decreases; by decreasing the money supplyE) B) and D)
F) B) and C)

Question 15

If the MPC = 3 / 4,what is the government purchases multiplier?

Accepted Answer

A)   1 / 4
B)   3 / 4
C)   4 / 3
D)   4E) A) and C)
F) All of the above

Question 16

When the interest rate increases,how do the opportunity cost of holding money and the quantity of money demanded change?

Accepted Answer

A)   The opportunity cost of holding money increases,so the quantity of money demanded increases.
B)   The opportunity cost of holding money increases,so the quantity of money demanded decreases.
C)   The opportunity cost of holding money decreases,so the quantity of money demanded increases.
D)   The opportunity cost of holding money decreases,so the quantity of money demanded decreases.E) C) and D)
F) B) and C)

Question 17

Which term refers to the reduction in demand that results when a fiscal expansion raises the interest rate?

Accepted Answer

A)   multiplier effect
B)   crowding-out effect
C)   accelerator effect
D)   catch-up effectE) B) and C)
F) C) and D)

Question 18

If the MPC is 0.75 and there are no crowding-out or accelerator effects,an initial increase in AD of $100 billion will eventually shift the AD curve to the right by how much?

Accepted Answer

A)   $40 billion
B)   $133.33 billion
C)   $250 billion
D)   $400 billionE) A) and C)
F) C) and D)

Question 19

Explain why the interest rate is the opportunity cost of holding currency.What is the benefit of holding currency?

Accepted Answer

The nominal interest rate on currency is...

Question 20

The federal government decides to stimulate the economy and increases government expenditure on new infrastructure projects by $20 billion.The marginal propensity to consume is MPC = 75 and the marginal propensity to import is MPI = .20.Suppose the crowding-out effect is twice the amount of government spending.
a.In a closed economy,what is the increase in output caused by the stimulus package of $20 billion?
b.What is the increase in output if the economy is open?

Accepted Answer

a.If the economy is closed,output increa...

Exam 15: The Influence of Monetary and Fiscal Policy on Aggregate Demand

If at some interest rate the quantity of money demanded is greater than the quantity of money supplied,what will people desire to do and what will happen to the interest rate?

Correct Answer
verified

The multiplier is equal to MPC / (1 - MPC).

Correct Answer
verified

In the short run,a decrease in the money supply causes interest rates and aggregate demand to do what?

Correct Answer
verified

Suppose that consumers become pessimistic about the future health of the economy,and so cut back on their consumption spending.What will happen to aggregate demand and to output? What might the government have to do to keep output stable?

Correct Answer
verified
As consumers become pessimistic about th...
View Answer

Which of the following tends to make aggregate demand shift right farther than the amount that government expenditures increase?

Correct Answer
verified

What is the variable that balances the money demand and supply in the liquidity-preference and the classical theories?

Correct Answer
verified

Fiscal policy refers to the idea that aggregate demand is changed by changes in what?

Correct Answer
verified

In a small open economy with a flexible exchange rate,what does a monetary injection cause?

Correct Answer
verified

According to liquidity-preference theory,other things being equal,what does a higher price level lead households to do in the short run?

Correct Answer
verified

When the interest rate increases,how do the opportunity cost of holding money and the quantity of money demanded change?

Correct Answer
verified

According to the theory of liquidity preference,how is the money supply affected by the interest rate?

Correct Answer
verified

Which term refers to the reduction in demand that results when a fiscal expansion raises the interest rate?

Correct Answer
verified

If the stock market crashes,what would be the effect on aggregate demand and how could the Bank of Canada offset those effects?

Correct Answer
verified

Explain why the interest rate is the opportunity cost of holding currency.What is the benefit of holding currency?

Correct Answer
verified
The nominal interest rate on currency is...
View Answer

If the MPC = 3 / 4,what is the government purchases multiplier?

Correct Answer
verified

What is the most likely effect of an increase in government spending on goods to build or repair infrastructure?

Correct Answer
verified

If there is excess money supply,what will people do and what happens to the interest rate?

Correct Answer
verified

If the MPC is 0.75 and there are no crowding-out or accelerator effects,an initial increase in AD of $100 billion will eventually shift the AD curve to the right by how much?

Correct Answer
verified

According to Keynes,what concept did aggregate demand play a key role in explaining?

Correct Answer
verified

Correct Answer
verified
a.If the economy is closed,output increa...
View Answer

Exam 15: The Influence of Monetary and Fiscal Policy on Aggregate Demand

If at some interest rate the quantity of money demanded is greater than the quantity of money supplied,what will people desire to do and what will happen to the interest rate?

Correct AnswerverifiedShow Answer

The multiplier is equal to MPC / (1 - MPC).

Correct AnswerverifiedShow Answer

In the short run,a decrease in the money supply causes interest rates and aggregate demand to do what?

Correct AnswerverifiedShow Answer

Suppose that consumers become pessimistic about the future health of the economy,and so cut back on their consumption spending.What will happen to aggregate demand and to output? What might the government have to do to keep output stable?

Correct AnswerverifiedAs consumers become pessimistic about th...View AnswerShow Answer

Which of the following tends to make aggregate demand shift right farther than the amount that government expenditures increase?

Correct AnswerverifiedShow Answer

What is the variable that balances the money demand and supply in the liquidity-preference and the classical theories?

Correct AnswerverifiedShow Answer

Fiscal policy refers to the idea that aggregate demand is changed by changes in what?

Correct AnswerverifiedShow Answer

In a small open economy with a flexible exchange rate,what does a monetary injection cause?

Correct AnswerverifiedShow Answer

According to liquidity-preference theory,other things being equal,what does a higher price level lead households to do in the short run?

Correct AnswerverifiedShow Answer

When the interest rate increases,how do the opportunity cost of holding money and the quantity of money demanded change?

Correct AnswerverifiedShow Answer

According to the theory of liquidity preference,how is the money supply affected by the interest rate?

Correct AnswerverifiedShow Answer

Which term refers to the reduction in demand that results when a fiscal expansion raises the interest rate?

Correct AnswerverifiedShow Answer

If the stock market crashes,what would be the effect on aggregate demand and how could the Bank of Canada offset those effects?

Correct AnswerverifiedShow Answer

Explain why the interest rate is the opportunity cost of holding currency.What is the benefit of holding currency?

Correct AnswerverifiedThe nominal interest rate on currency is...View AnswerShow Answer

If the MPC = 3 / 4,what is the government purchases multiplier?

Correct AnswerverifiedShow Answer

What is the most likely effect of an increase in government spending on goods to build or repair infrastructure?

Correct AnswerverifiedShow Answer

If there is excess money supply,what will people do and what happens to the interest rate?

Correct AnswerverifiedShow Answer

If the MPC is 0.75 and there are no crowding-out or accelerator effects,an initial increase in AD of $100 billion will eventually shift the AD curve to the right by how much?

Correct AnswerverifiedShow Answer

According to Keynes,what concept did aggregate demand play a key role in explaining?

Correct AnswerverifiedShow Answer

Correct Answerverifieda.If the economy is closed,output increa...View AnswerShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
As consumers become pessimistic about th...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The nominal interest rate on currency is...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
a.If the economy is closed,output increa...
View Answer