Question 1

Which of the following is not a reason the aggregate-demand curve slopes downward? As the price level increases,

Accepted Answer

A)   firms may believe the relative price of their output has risen.
B)   real wealth declines.
C)   the interest rate increases.
D)   the exchange rate increases.E) A) and B)
F) None of the above

Question 2

The marginal propensity to consume (MPC)  is defined as the fraction of

Accepted Answer

A)   extra income that a household consumes rather than saves.
B)   extra income that a household either consumes or saves.
C)   total income that a household consumes rather than saves.
D)   total income that a household either consumes or saves.E) None of the above
F) A) and B)

Question 3

The Fed is concerned about stock market booms because the booms

Accepted Answer

A)   increase consumption spending.
B)   increase investment spending.
C)   increase both consumption and investment spending.
D)   None of the above is correct.E) C) and D)
F) None of the above

Question 4

The theory of liquidity preference is largely at odds with the basic ideas of supply and demand.

Accepted Answer

A) True 
 B)False

Question 5

The lag problem associated with monetary policy is due mostly to

Accepted Answer

A)   the fact that business firms make investment plans far in advance.
B)   the political system of checks and balances that slows down the process of determining monetary policy.
C)   the time it takes for changes in government spending to affect the interest rate.
D)   All of the above are correct.E) A) and C)
F) A) and D)

Question 6

Which of the following events would shift money demand to the left?

Accepted Answer

A)   an increase in the interest rate or an increase in the price level
B)   an increase in the interest rate, but not an increase in the price level
C)   an increase in the price level, but not an increase in the interest rate
D)   neither an increase in the interest rate nor an increase in the price levelE) All of the above
F) B) and C)

Question 7

If the stock market booms, then

Accepted Answer

A)   aggregate demand increases, which the Fed could offset by increasing the money supply.
B)   aggregate supply increases, which the Fed could offset by increasing the money supply.
C)   aggregate demand increases, which the Fed could offset by decreasing the money supply.
D)   aggregate supply increases, which the Fed could offset by decreasing the money supply.E) None of the above
F) All of the above

Question 8

If the Fed conducts open-market purchases, the money supply

Accepted Answer

A)   increases and aggregate demand shifts right.
B)   increases and aggregate demand shifts left.
C)   decreases and aggregate demand shifts right.
D)   decreases and aggregate demand shifts left.E) All of the above
F) A) and B)

Question 9

Other things equal, in the short run a higher 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 C)
F) None of the above

Question 10

A policy that results in slow and steady growth of the money supply is an example of

Accepted Answer

A)   an "easy" monetary policy.
B)   a "passive" monetary policy.
C)   a "practical" monetary policy.
D)   an "active" monetary policy.E) None of the above
F) B) and D)

Question 11

A decrease in the interest rate could have been caused by the money-demand curve shifting

Accepted Answer

A)   leftward because the price level fell.
B)   leftward because the price level rose
C)   rightward because the price level fell.
D)   rightward because the price level rose.E) B) and C)
F) B) and D)

Question 12

For the U.S. economy, money holdings are a

Accepted Answer

A)   large part of household wealth, and so the interest-rate effect is large.
B)   large part of household wealth, and so the wealth effect is large.
C)   small part of household wealth, and so the interest-rate effect is small.
D)   small part of household wealth, and so the wealth effect is small.E) B) and C)
F) None of the above

Question 13

According to liquidity preference theory, the opportunity cost of holding money is

Accepted Answer

A)   the interest rate on bonds.
B)   the inflation rate.
C)   the cost of converting bonds to a medium of exchange.
D)   the difference between the inflation rate and the interest rate on bonds.E) A) and B)
F) A) and C)

Question 14

When the Fed lowers the growth rate of the money supply, it must take into account

Accepted Answer

A)   only the short-run effect on production.
B)   only the short-run effects on inflation and production.
C)   only the long-run effect on inflation.
D)   the long-run effect on inflation as well as the short-run effect on production.E) B) and D)
F) None of the above

Question 15

Unemployment insurance and welfare programs work as automatic stabilizers.

Accepted Answer

A) True 
 B)False

Question 16

A severe problem that many economists have with the active use of monetary policy and fiscal policy to stabilize the economy is that, while those policies obviously work well in practice, they are not well understood on a theoretical level.

Accepted Answer

A) True 
 B)False

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

The Fed is concerned about stock market booms because the booms

Correct Answer
verified

For the U.S. economy, money holdings are a

Correct Answer
verified

If the Fed conducts open-market purchases, the money supply

Correct Answer
verified

The theory of liquidity preference is largely at odds with the basic ideas of supply and demand.

Correct Answer
verified

Unemployment insurance and welfare programs work as automatic stabilizers.

Correct Answer
verified

A severe problem that many economists have with the active use of monetary policy and fiscal policy to stabilize the economy is that, while those policies obviously work well in practice, they are not well understood on a theoretical level.

Correct Answer
verified

The lag problem associated with monetary policy is due mostly to

Correct Answer
verified

A decrease in the interest rate could have been caused by the money-demand curve shifting

Correct Answer
verified

When the Fed lowers the growth rate of the money supply, it must take into account

Correct Answer
verified

According to liquidity preference theory, the opportunity cost of holding money is

Correct Answer
verified

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

Correct Answer
verified

Which of the following is not a reason the aggregate-demand curve slopes downward? As the price level increases,

Correct Answer
verified

Which of the following events would shift money demand to the left?

Correct Answer
verified

A policy that results in slow and steady growth of the money supply is an example of

Correct Answer
verified

If the stock market booms, then

Correct Answer
verified

The marginal propensity to consume (MPC) is defined as the fraction of

Correct Answer
verified

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

The Fed is concerned about stock market booms because the booms

Correct AnswerverifiedShow Answer

For the U.S. economy, money holdings are a

Correct AnswerverifiedShow Answer

If the Fed conducts open-market purchases, the money supply

Correct AnswerverifiedShow Answer

The theory of liquidity preference is largely at odds with the basic ideas of supply and demand.

Correct AnswerverifiedShow Answer

Unemployment insurance and welfare programs work as automatic stabilizers.

Correct AnswerverifiedShow Answer

A severe problem that many economists have with the active use of monetary policy and fiscal policy to stabilize the economy is that, while those policies obviously work well in practice, they are not well understood on a theoretical level.

Correct AnswerverifiedShow Answer

The lag problem associated with monetary policy is due mostly to

Correct AnswerverifiedShow Answer

A decrease in the interest rate could have been caused by the money-demand curve shifting

Correct AnswerverifiedShow Answer

When the Fed lowers the growth rate of the money supply, it must take into account

Correct AnswerverifiedShow Answer

According to liquidity preference theory, the opportunity cost of holding money is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following is not a reason the aggregate-demand curve slopes downward? As the price level increases,

Correct AnswerverifiedShow Answer

Which of the following events would shift money demand to the left?

Correct AnswerverifiedShow Answer

A policy that results in slow and steady growth of the money supply is an example of

Correct AnswerverifiedShow Answer

If the stock market booms, then

Correct AnswerverifiedShow Answer

The marginal propensity to consume (MPC) is defined as the fraction of

Correct AnswerverifiedShow 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

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified