Question 1

If the MPC = 0.85, then the government purchases multiplier is about

Accepted Answer

A)   1.18.
B)   3.33.
C)   6.67.
D)   8.5.E) All of the above
F) None of the above

Question 2

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

Accepted Answer

A)   an increase in the price level
B)   a decrease in the price level
C)   an increase in the interest rate
D)   a decrease in the interest rateE) B) and C)
F) All of the above

Question 3

A situation in which the Fed's target interest rate has fallen as far as it can fall is sometimes described as a

Accepted Answer

A)   liquidity preference.
B)   liquidity trap.
C)   open-market trap.
D)   interest-rate contraction.E) C) and D)
F) B) and C)

Question 4

Figure 16-7.
 
-Refer to Figure 16-7. If the economy is at point b, a policy to restore full employment would be

Accepted Answer

A)   an increase in the money supply.
B)   a decrease in government purchases.
C)   an increase in taxes.
D)   All of the above are correct.E) A) and C)
F) All of the above

Question 5

Assume that there is no accelerator affect. The MPC = 3/4. The government increases both expenditures and taxes by $600. The effect of taxes on aggregate demand is 3/4 the size of that created by government expenditures alone. The crowding out effect is 1/5 as strong as the combined effect of government expenditures and taxes on aggregate demand. How much does aggregate demand shift by?

Accepted Answer

A)   $1480
B)   $480
C)   $160
D)   None of the above is correct.E) B) and D)
F) All of the above

Question 6

Other things the same, an increase in the price level causes the real value of the dollar to fall in the market for foreign-currency exchange.

Accepted Answer

A) True 
 B)False

Question 7

In a certain economy, when income is $400, consumer spending is $350. The value of the multiplier for this economy is 3.125. It follows that, when income is $450, consumer spending is

Accepted Answer

A)   $384. For this economy, an initial impulse of $50 in consumer spending translates into a $146.67 increase in aggregate demand.
B)   $384. For this economy, an initial impulse of $50 in consumer spending translates into a $156.25 increase in aggregate demand.
C)   $389.38. For this economy, an initial impulse of $50 in consumer spending translates into a $146.67 increase in aggregate demand.
D)   $389.38. For this economy, an initial impulse of $50 in consumer spending translates into a $156.25 increase in aggregate demand.E) A) and D)
F) A) and C)

Question 8

Who asserted that "the Federal Reserve's job is to take away the punch bowl just as the party gets going?"

Accepted Answer

A)   president George W. Bush
B)   president John F. Kennedy
C)   economist John Maynard Keynes
D)   former chairman of the Federal Reserve System William McChesney MartinE) B) and C)
F) A) and C)

Question 9

If, at some interest rate, the quantity of money demanded is greater than the quantity of money supplied, people will desire to

Accepted Answer

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

Question 10

If the stock market crashes, then

Accepted Answer

A)   aggregate demand increases, which the Fed could offset by increasing the money supply.
B)   aggregate demand increases, which the Fed could offset by decreasing the money supply.
C)   aggregate demand decreases, which the Fed could offset by increasing the money supply.
D)   aggregate demand decreases, which the Fed could offset by decreasing the money supply.E) A) and B)
F) B) and C)

Question 11

Monetary policy and fiscal policy are the only factors that influence aggregate demand.

Accepted Answer

A) True 
 B)False

Question 12

Which among the following assets is the most liquid?

Accepted Answer

A)   corporate bonds
B)   fine art
C)   deposits that can be withdrawn using ATMs
D)   shares of stockE) All of the above
F) C) and D)

Question 13

People choose to hold a smaller quantity of money if

Accepted Answer

A)   the interest rate rises, which causes the opportunity cost of holding money to rise.
B)   the interest rate falls, which causes the opportunity cost of holding money to rise.
C)   the interest rate rises, which causes the opportunity cost of holding money to fall.
D)   the interest rate falls, which causes the opportunity cost of holding money to fall.E) A) and B)
F) None of the above

Question 14

When there is an increase in government expenditures, which of the following raises investment spending?

Accepted Answer

A)   the investment accelerator and crowding out
B)   the investment accelerator but not crowding out
C)   crowding out but not the investment accelerator
D)   neither the investment accelerator or crowding outE) A) and B)
F) C) and D)

Question 15

If the inflation rate is zero, then the nominal and real interest rate are the same.

Accepted Answer

A) True 
 B)False

Question 16

For the most part, fiscal policy affects the economy in the short run while monetary policy primarily matters in the long run.

Accepted Answer

A) True 
 B)False

Question 17

Other things the same, which of the following responses would we expect to result from an decrease in U.S. interest rates?

Accepted Answer

A)   U.S. citizens decide to hold more foreign bonds.
B)   People choose to hold more currency.
C)   You decide to purchase a new oven for your cookie factory.
D)   All of the above are correct.E) All of the above
F) A) and B)

Question 18

Use the money market to explain the interest-rate effect and its relation to the slope of the aggregate demand curve.

Accepted Answer

When the price level falls, people need ...

Question 19

The interest-rate effect

Accepted Answer

A)   depends on the idea that increases in interest rates decrease the quantity of goods and services demanded.
B)   depends on the idea that increases in interest rates decrease the quantity of goods and services supplied.
C)   is responsible for the downward slope of the money-demand curve.
D)   is the least important reason, in the case of the United States, for the downward slope of the aggregate-demand curve.E) A) and B)
F) A) and C)

Question 20

During recessions, unemployment insurance payments tend to rise.

Accepted Answer

A) True 
 B)False

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

Which among the following assets is the most liquid?

Correct Answer
verified

If the inflation rate is zero, then the nominal and real interest rate are the same.

Correct Answer
verified

Figure 16-7. -Refer to Figure 16-7. If the economy is at point b, a policy to restore full employment would be

Correct Answer
verified

Other things the same, which of the following responses would we expect to result from an decrease in U.S. interest rates?

Correct Answer
verified

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

Correct Answer
verified

Use the money market to explain the interest-rate effect and its relation to the slope of the aggregate demand curve.

Correct Answer
verified
When the price level falls, people need ...
View Answer

Monetary policy and fiscal policy are the only factors that influence aggregate demand.

Correct Answer
verified

A situation in which the Fed's target interest rate has fallen as far as it can fall is sometimes described as a

Correct Answer
verified

If the stock market crashes, then

Correct Answer
verified

If the MPC = 0.85, then the government purchases multiplier is about

Correct Answer
verified

Correct Answer
verified

Other things the same, an increase in the price level causes the real value of the dollar to fall in the market for foreign-currency exchange.

Correct Answer
verified

For the most part, fiscal policy affects the economy in the short run while monetary policy primarily matters in the long run.

Correct Answer
verified

During recessions, unemployment insurance payments tend to rise.

Correct Answer
verified

The interest-rate effect

Correct Answer
verified

If, at some interest rate, the quantity of money demanded is greater than the quantity of money supplied, people will desire to

Correct Answer
verified

Who asserted that "the Federal Reserve's job is to take away the punch bowl just as the party gets going?"

Correct Answer
verified

People choose to hold a smaller quantity of money if

Correct Answer
verified

In a certain economy, when income is $400, consumer spending is $350. The value of the multiplier for this economy is 3.125. It follows that, when income is $450, consumer spending is

Correct Answer
verified

When there is an increase in government expenditures, which of the following raises investment spending?

Correct Answer
verified

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

Which among the following assets is the most liquid?

Correct AnswerverifiedShow Answer

If the inflation rate is zero, then the nominal and real interest rate are the same.

Correct AnswerverifiedShow Answer

Figure 16-7. -Refer to Figure 16-7. If the economy is at point b, a policy to restore full employment would be

Correct AnswerverifiedShow Answer

Other things the same, which of the following responses would we expect to result from an decrease in U.S. interest rates?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Use the money market to explain the interest-rate effect and its relation to the slope of the aggregate demand curve.

Correct AnswerverifiedWhen the price level falls, people need ...View AnswerShow Answer

Monetary policy and fiscal policy are the only factors that influence aggregate demand.

Correct AnswerverifiedShow Answer

A situation in which the Fed's target interest rate has fallen as far as it can fall is sometimes described as a

Correct AnswerverifiedShow Answer

If the stock market crashes, then

Correct AnswerverifiedShow Answer

If the MPC = 0.85, then the government purchases multiplier is about

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Other things the same, an increase in the price level causes the real value of the dollar to fall in the market for foreign-currency exchange.

Correct AnswerverifiedShow Answer

For the most part, fiscal policy affects the economy in the short run while monetary policy primarily matters in the long run.

Correct AnswerverifiedShow Answer

During recessions, unemployment insurance payments tend to rise.

Correct AnswerverifiedShow Answer

The interest-rate effect

Correct AnswerverifiedShow Answer

If, at some interest rate, the quantity of money demanded is greater than the quantity of money supplied, people will desire to

Correct AnswerverifiedShow Answer

Who asserted that "the Federal Reserve's job is to take away the punch bowl just as the party gets going?"

Correct AnswerverifiedShow Answer

People choose to hold a smaller quantity of money if

Correct AnswerverifiedShow Answer

In a certain economy, when income is $400, consumer spending is $350. The value of the multiplier for this economy is 3.125. It follows that, when income is $450, consumer spending is

Correct AnswerverifiedShow Answer

When there is an increase in government expenditures, which of the following raises investment spending?

Correct AnswerverifiedShow Answer

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When the price level falls, people need ...
View Answer

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