Question 1

The Kennedy tax cut of 1964 included an investment tax credit that was designed to

Accepted Answer

A)   increase aggregate demand in the short run and aggregate supply in the long run.
B)   increase aggregate supply in the short run and aggregate demand in the long run.
C)   only increase aggregate supply in the long run.
D)   only increase aggregate demand in the short run.E) A) and D)
F) All of the above

Question 2

The government builds a new water-treatment plant. The owner of the company that builds the plant pays her workers. The workers increase their spending. Firms from which the workers buy goods increase their output. This type of effect on spending illustrates

Accepted Answer

A)   the multiplier effect.
B)   the crowding-out effect.
C)   the Fisher effect.
D)   the wealth effect.E) A) and B)
F) B) and C)

Question 3

If expected inflation is constant and the nominal interest rate increases by 3.5 percentage points, then the real interest rate

Accepted Answer

A)   increases by 3.5 percentage points.
B)   increases, but by less than 3.5 percentage points.
C)   decreases, but by less than 3.5 percentage points.
D)   decreases by 3.5 percentage points.E) A) and B)
F) B) and C)

Question 4

In the graph of the money market, the money supply curve is

Accepted Answer

A)   vertical. It shifts rightward if the Fed buys bonds.
B)   vertical. It shifts rightward if the Fed sells bonds.
C)   upward sloping. It shifts rightward if the Fed buys bonds.
D)   upward sloping. It shifts rightward if the Fed sells bonds.E) B) and D)
F) A) and D)

Question 5

Which of the following actions might we logically expect to result from rising stock prices?

Accepted Answer

A)   Jim increases his consumption spending.
B)   Firms sell fewer shares of new stock.
C)   Firms spend less on investment.
D)   None of the above is correct.E) A) and B)
F) C) and D)

Question 6

Supply-side economists believe that a reduction in the tax rate

Accepted Answer

A)   always decrease government tax revenue.
B)   shifts the aggregate supply curve to the right.
C)   provides no incentive for people to work more.
D)   would decrease consumption.E) A) and C)
F) A) and B)

Question 7

According to liquidity preference theory, if the quantity of money supplied is greater than the quantity demanded, 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 B)
F) A) and C)

Question 8

Scenario 16-1. Take the following information as given for a small, imaginary economy:
 
-Refer to Scenario 16-1. The multiplier for this economy is

Accepted Answer

A)   2.86.
B)   2.98.
C)   4.00.
D)   5.00.E) All of the above
F) A) and B)

Question 9

The price of imported oil rises. If the government wanted to stabilize output, which of the following could it do?

Accepted Answer

A)   increase government expenditures or increase the money supply
B)   increase government expenditures or decrease the money supply
C)   decrease government expenditures or increase the money supply
D)   decrease government expenditures or decrease the money supplyE) 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 about for the MPC.
D)   fact that the multiplier effect is represented by an infinite geometric series.E) A) and B)
F) B) and C)

Question 11

If there is excess demand for money, then people will

Accepted Answer

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

Question 12

Suppose that the government spends more on a missile defense program. What does this do to aggregate demand? How is you answer affected by the presence of the multiplier, crowding-out, taxes, and investment-accelerator effects?

Accepted Answer

The increase in expenditures means that ...

Question 13

If the MPC is 3/4 then the multiplier is

Accepted Answer

A)   4, so a $100 increase in government spending increases aggregate demand by $400.
B)   4, so a $100 increase in government spending increases output by $400.
C)   4/3, so a $100 increase in government spending increases aggregate demand by $400/3.
D)   4/3, so a $100 increase in government spending increases output by $400/3.E) A) and D)
F) B) and D)

Question 14

In the long run, the level of output

Accepted Answer

A)   depends on the money supply.
B)   depends on the price level.
C)   is determined by supply-side factors.
D)   All of the above are correct.E) None of the above
F) All of the above

Question 15

If the multiplier is 5, then the MPC is

Accepted Answer

A)   0.05.
B)   0.5.
C)   0.6.
D)   0.8.E) B) and D)
F) A) and B)

Question 16

Assume the money market is initially in equilibrium. If the price level increases, then according to liquidity preference theory there is an excess

Accepted Answer

A)   supply of money until the interest rate increases.
B)   supply of money until the interest rate decreases.
C)   demand for money until the interest rate increases.
D)   demand for money until the interest rate decreases.E) None of the above
F) B) and D)

Question 17

The most important reason for the slope of the aggregate-demand curve is that as the price level

Accepted Answer

A)   increases, interest rates increase, and investment decreases.
B)   increases, interest rates decrease, and investment increases.
C)   decreases, interest rates increase, and investment increases.
D)   decreases, interest rates decrease, and investment decreases.E) C) and D)
F) All of the above

Question 18

Fiscal policy refers to the idea that aggregate demand is affected by changes in

Accepted Answer

A)   the money supply.
B)   government spending and taxes.
C)   trade policy.
D)   All of the above are correct.E) B) and C)
F) B) and D)

Question 19

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 20

Which of the following claims concerning the importance of effects that explain the slope of the U.S. aggregate-demand curve is correct?

Accepted Answer

A)   The exchange-rate effect is relatively small because exports and imports are a small part of real GDP.
B)   The interest-rate effect is relatively small because investment spending is not very responsive to interest rate changes.
C)   The wealth effect is relatively large because money holdings are a significant portion of most households' wealth.
D)   None of the above is correct.E) A) and C)
F) A) and B)

Exam 16: The Influence of Monetary and Fiscal Policy on Aggregate Demand

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

Correct AnswerverifiedShow Answer

If there is excess demand for money, then people will

Correct AnswerverifiedShow Answer

If expected inflation is constant and the nominal interest rate increases by 3.5 percentage points, then the real interest rate

Correct AnswerverifiedShow Answer

If the MPC is 3/4 then the multiplier is

Correct AnswerverifiedShow Answer

Suppose that the government spends more on a missile defense program. What does this do to aggregate demand? How is you answer affected by the presence of the multiplier, crowding-out, taxes, and investment-accelerator effects?

Correct AnswerverifiedThe increase in expenditures means that ...View AnswerShow Answer

The price of imported oil rises. If the government wanted to stabilize output, which of the following could it do?

Correct AnswerverifiedShow Answer

The Kennedy tax cut of 1964 included an investment tax credit that was designed to

Correct AnswerverifiedShow Answer

In the graph of the money market, the money supply curve is

Correct AnswerverifiedShow Answer

Which of the following claims concerning the importance of effects that explain the slope of the U.S. aggregate-demand curve is correct?

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

The most important reason for the slope of the aggregate-demand curve is that as the price level

Correct AnswerverifiedShow Answer

Supply-side economists believe that a reduction in the tax rate

Correct AnswerverifiedShow Answer

Assume the money market is initially in equilibrium. If the price level increases, then according to liquidity preference theory there is an excess

Correct AnswerverifiedShow Answer

Scenario 16-1. Take the following information as given for a small, imaginary economy: -Refer to Scenario 16-1. The multiplier for this economy is

Correct AnswerverifiedShow Answer

In the long run, the level of output

Correct AnswerverifiedShow Answer

The government builds a new water-treatment plant. The owner of the company that builds the plant pays her workers. The workers increase their spending. Firms from which the workers buy goods increase their output. This type of effect on spending illustrates

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following actions might we logically expect to result from rising stock prices?

Correct AnswerverifiedShow Answer

Fiscal policy refers to the idea that aggregate demand is affected by changes in

Correct AnswerverifiedShow Answer

If the multiplier is 5, then the MPC is

Correct AnswerverifiedShow Answer

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The increase in expenditures means that ...
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