Question 1

Most economists believe that a cut in tax rates

Accepted Answer

A)   would generally increase government tax revenue.
B)   would have no effect on aggregate demand.
C)   has a relatively small effect on the aggregate-supply curve.
D)   All of the above are correct.E) C) and D)
F) B) and D)

Question 2

When the interest rate increases, the opportunity cost of holding money

Accepted Answer

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

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) A) and B)
F) A) and C)

Question 4

To increase output, policymakers can _____ the money supply, _____ taxes, and/or _____ government purchases.

Accepted Answer

increase, ...

Question 5

If the marginal propensity to consume is 0.75, and there is no investment accelerator or crowding out, a $15 billion increase in government expenditures would shift the aggregate demand curve right by

Accepted Answer

A)   $60 billion, but the effect would be larger if there were an investment accelerator.
B)   $60 billion, but the effect would be smaller if there were an investment accelerator.
C)   $45 billion, but the effect would be larger if there were an investment accelerator.
D)   $45 billion, but the effect would be smaller if there were an investment accelerator.E) B) and D)
F) A) and D)

Question 6

The ease with which an asset can be converted into the medium of exchange is known as _____.

Accepted Answer

The answer of The ease with which an asset can...

Question 7

Which of the following policies would be advocated by someone who wants the government to follow an active stabilization policy when the economy is experiencing severe unemployment?

Accepted Answer

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

Question 8

An increase in government spending on goods to build or repair infrastructure

Accepted Answer

A)   shifts the aggregate demand curve to the right.
B)   has a multiplier effect.
C)   shifts the aggregate supply curve to the right, but this effect is likely more important in the long run.
D)   All of the above are correct.E) C) and D)
F) B) and C)

Question 9

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

Question 10

A tax cut shifts the aggregate demand curve the farthest if

Accepted Answer

A)   the MPC is large and if the tax cut is permanent.
B)   the MPC is large and if the tax cut is temporary.
C)   the MPC is small and if the tax cut is permanent.
D)   the MPC is small and if the tax cut is temporary.E) A) and C)
F) B) and D)

Question 11

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) A) and B)
F) None of the above

Question 12

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

Accepted Answer

A)   Your aunt puts more money in her savings account.
B)   Foreign citizens decide to buy fewer U.S. bonds.
C)   You decide to purchase a new oven for your cookie factory.
D)   All of the above are correct.E) B) and D)
F) B) and C)

Question 13

Which among the following assets is the most liquid?

Accepted Answer

A)   capital goods
B)   stocks and bonds with a low risk
C)   real estate
D)   funds in a checking accountE) None of the above
F) A) and C)

Question 14

In recent years, the Federal Reserve has conducted policy by setting a target for

Accepted Answer

A)   bank reserves.
B)   the monetary growth rate.
C)   the exchange rate.
D)   the federal funds rate.E) A) and B)
F) A) and C)

Question 15

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 D)

Question 16

The Fed can influence the money supply by

Accepted Answer

A)   changing how much it lends to banks.
B)   changing the interest rate it pays banks on the reserves they are holding.
C)   using open-market operations.
D)   All of the above are correct.E) C) and D)
F) None of the above

Question 17

Last year, total income increased $1,000 and consumption increased $800. An increase in government spending equal to $10 would cause output to increase by $_____ because the multiplier is ______.

Accepted Answer

The answer of Last year, total income increased $1,000 and...

Question 18

The process of the investment accelerator involves

Accepted Answer

A)   positive feedback from aggregate demand to investment.
B)   negative feedback from aggregate demand to investment.
C)   positive feedback from aggregate supply to investment.
D)   negative feedback from aggregate supply to investment.E) A) and C)
F) None of the above

Question 19

In the early 1960s, the Kennedy administration made considerable use of

Accepted Answer

A)   fiscal policy to stimulate the economy.
B)   fiscal policy to slow down the economy.
C)   monetary policy to stimulate the economy.
D)   monetary policy to slow down the economy.E) A) and C)
F) B) and C)

Question 20

Scenario 34-2. The following facts apply to a small, imaginary economy.
• Consumption spending is $6,720 when income is $8,000.
• Consumption spending is $7,040 when income is $8,500.
-Refer to Scenario 34-2. For this economy, an initial increase of $500 in government purchases translates into a

Accepted Answer

A)   $1,388.89 increase in aggregate demand in the absence of the crowding-out effect.
B)   $3,125.00 increase in aggregate demand in the absence of the crowding-out effect.
C)   $1,135 increase in aggregate demand when the crowding-out effect is taken into account.
D)   $3,125.00 increase in aggregate demand when the crowding-out effect is taken into account.E) A) and C)
F) None of the above

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

When the interest rate increases, the opportunity cost of holding money

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

Correct AnswerverifiedShow Answer

Which among the following assets is the most liquid?

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

Correct AnswerverifiedShow Answer

In recent years, the Federal Reserve has conducted policy by setting a target for

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

Last year, total income increased $1,000 and consumption increased $800. An increase in government spending equal to $10 would cause output to increase by $_____ because the multiplier is ______.

Correct AnswerverifiedShow Answer

The process of the investment accelerator involves

Correct AnswerverifiedShow Answer

Most economists believe that a cut in tax rates

Correct AnswerverifiedShow Answer

In the early 1960s, the Kennedy administration made considerable use of

Correct AnswerverifiedShow Answer

A tax cut shifts the aggregate demand curve the farthest if

Correct AnswerverifiedShow Answer

Which of the following policies would be advocated by someone who wants the government to follow an active stabilization policy when the economy is experiencing severe unemployment?

Correct AnswerverifiedShow Answer

If the marginal propensity to consume is 0.75, and there is no investment accelerator or crowding out, a $15 billion increase in government expenditures would shift the aggregate demand curve right by

Correct AnswerverifiedShow Answer

The ease with which an asset can be converted into the medium of exchange is known as _____.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The Fed can influence the money supply by

Correct AnswerverifiedShow Answer

An increase in government spending on goods to build or repair infrastructure

Correct AnswerverifiedShow Answer

The Fed is concerned about stock market booms because the booms

Correct AnswerverifiedShow Answer

To increase output, policymakers can _____ the money supply, _____ taxes, and/or _____ government purchases.

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Last year, total income increased $1,000 and consumption increased $800. An increase in government spending equal to $10 would cause output to increase by $_ because the multiplier is __.

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To increase output, policymakers can ___ the money supply, _ taxes, and/or ___ government purchases.

Correct Answer
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increase, ...
View Answer