Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

If people decide to hold less money, then

Accepted Answer

A)   money demand decreases, there is an excess supply of money, and interest rates rise.
B)   money demand decreases, there is an excess supply of money, and interest rates fall.
C)   money demand increases, there is an excess demand for money, and interest rates fall.
D)   money demand increases, there is an excess demand for money, and interest rates rise.E) A) and B)
F) C) and D)

Question 3

If expected inflation is constant and the nominal interest rate decreases by 2 percentage points, then the real interest rate

Accepted Answer

A)   increases by 2 percentage points.
B)   increases, but by less than 2 percentage points.
C)   decreases, but by less than 2 percentage points.
D)   decreases by 2 percentage points.E) B) and C)
F) A) and D)

Question 4

If the marginal propensity to consume is 4/5, then a decrease in government spending of $1 billion decreases the demand for goods and services by $5 billion.

Accepted Answer

A) True 
 B)False

Question 5

During recessions, unemployment insurance payments tend to rise.

Accepted Answer

A) True 
 B)False

Question 6

Some economists argue that

Accepted Answer

A)   monetary policy should actively be used to stabilize the economy.
B)   fiscal policy should actively be used to stabilize the economy.
C)   fiscal policy can be used to shift the AD curve.
D)   All of the above are correct.E) None of the above
F) A) and C)

Question 7

If the Federal Reserve decided to raise interest rates, it could

Accepted Answer

A)   buy bonds to lower the money supply.
B)   buy bonds to raise the money supply.
C)   sell bonds to lower the money supply.
D)   sell bonds to raise the money supply.E) All of the above
F) B) and C)

Question 8

Unemployment insurance benefits are an example of .

Accepted Answer

automatic ...

Question 9

According to the theory of liquidity preference, if output decreases

Accepted Answer

A)   people want to hold more money. This response is shown as a movement along the money demand curve.
B)   people want to hold more money. This response is shown as a shift of the money demand curve.
C)   people want to hold less money. This response is shown as a movement along the money demand curve.
D)   people want to hold less money. This response is shown as a shift of the money demand curve.E) C) and D)
F) None of the above

Question 10

If, at some interest rate, the quantity of money supplied is less than the quantity of money demanded, 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) All of the above

Question 11

The most important automatic stabilizer is

Accepted Answer

A)   open-market operations.
B)   the tax system.
C)   unemployment compensation.
D)   welfare benefits.E) A) and B)
F) A) and C)

Question 12

Figure 34-6. On the left-hand graph, MS represents the supply of money and MD represents the demand for money; on the right-hand graph, AD represents aggregate demand. The usual quantities are measured along the axes of both graphs.
 
-Refer to Figure 34-6. Suppose the graphs are drawn to show the effects of an increase in government purchases. If it were not for the increase in r from r1 to r2, then

Accepted Answer

A)   there would be no crowding out.
B)   the full multiplier effect of the increase in government purchases would be realized.
C)   the AD curves that actually apply, before and after the change in government purchases, would be separated horizontally by the distance equal to the multiplier times the change in government purchases.
D)   All of the above are correct.E) B) and C)
F) A) and B)

Question 13

An increase in the interest rate could have been caused by

Accepted Answer

A)   a fall in the price level causing the money-demand curve to shift leftward.
B)   a fall in the price level causing the money-demand curve to shift rightward.
C)   a rise in the price level causing the money-demand curve to shift leftward.
D)   a rise in the price level causing the money-demand curve to shift rightward.E) B) and D)
F) C) and D)

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 D)
F) B) and D)

Question 15

During a recession unemployment benefits rise. This rise in benefits makes aggregate demand higher than otherwise.

Accepted Answer

A) True 
 B)False

Question 16

An example of an automatic stabilizer is

Accepted Answer

A)   unemployment benefits.
B)   a lowering of interest rates by the Fed.
C)   a decrease in money demand.
D)   a decrease in tax rates in response to a recession.E) B) and C)
F) A) and C)

Question 17

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

Question 18

The multiplier for changes in government spending is calculated as

Accepted Answer

A)   1/MPC.
B)   1/1 - MP
C)  .
C)   MPC/1 - MP
C)  .
D)   1 - MP
C)  /MPC.E) B) and D)
F) A) and D)

Question 19

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) A) and C)

Question 20

When the Fed sells government bonds, the reserves of the banking system

Accepted Answer

A)   increase, so the money supply increases.
B)   increase, so the money supply decreases.
C)   decrease, so the money supply increases.
D)   decrease, so the money supply decreases.E) B) and C)
F) A) and B)

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

The multiplier for changes in government spending is calculated as

Correct Answer
verified

During a recession unemployment benefits rise. This rise in benefits makes aggregate demand higher than otherwise.

Correct Answer
verified

According to the theory of liquidity preference, if output decreases

Correct Answer
verified

Some economists argue that

Correct Answer
verified

If the stock market crashes, then

Correct Answer
verified

Unemployment insurance benefits are an example of .

Correct Answer
verified
automatic ...
View Answer

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

Correct Answer
verified

When the Fed sells government bonds, the reserves of the banking system

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

An example of an automatic stabilizer is

Correct Answer
verified

If expected inflation is constant and the nominal interest rate decreases by 2 percentage points, then the real interest rate

Correct Answer
verified

If the marginal propensity to consume is 4/5, then a decrease in government spending of $1 billion decreases the demand for goods and services by $5 billion.

Correct Answer
verified

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

Correct Answer
verified

During recessions, unemployment insurance payments tend to rise.

Correct Answer
verified

If the Federal Reserve decided to raise interest rates, it could

Correct Answer
verified

An increase in the interest rate could have been caused by

Correct Answer
verified

If people decide to hold less money, then

Correct Answer
verified

The most important automatic stabilizer is

Correct Answer
verified

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

The multiplier for changes in government spending is calculated as

Correct AnswerverifiedShow Answer

During a recession unemployment benefits rise. This rise in benefits makes aggregate demand higher than otherwise.

Correct AnswerverifiedShow Answer

According to the theory of liquidity preference, if output decreases

Correct AnswerverifiedShow Answer

Some economists argue that

Correct AnswerverifiedShow Answer

If the stock market crashes, then

Correct AnswerverifiedShow Answer

Unemployment insurance benefits are an example of .

Correct Answerverifiedautomatic ...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

When the Fed sells government bonds, the reserves of the banking system

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

An example of an automatic stabilizer is

Correct AnswerverifiedShow Answer

If expected inflation is constant and the nominal interest rate decreases by 2 percentage points, then the real interest rate

Correct AnswerverifiedShow Answer

If the marginal propensity to consume is 4/5, then a decrease in government spending of $1 billion decreases the demand for goods and services by $5 billion.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

During recessions, unemployment insurance payments tend to rise.

Correct AnswerverifiedShow Answer

If the Federal Reserve decided to raise interest rates, it could

Correct AnswerverifiedShow Answer

An increase in the interest rate could have been caused by

Correct AnswerverifiedShow Answer

If people decide to hold less money, then

Correct AnswerverifiedShow Answer

The most important automatic stabilizer is

Correct AnswerverifiedShow Answer

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automatic ...
View Answer

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