Question 1

According to liquidity preference theory, an increase in the price level causes the interest rate to

Accepted Answer

A)   increase, which increases the quantity of goods and services demanded.
B)   increase, which decreases the quantity of goods and services demanded.
C)   decrease, which increases the quantity of goods and services demanded.
D)   decrease, which decreases the quantity of goods and services demanded.E) None of the above
F) A) and B)

Question 2

Assume the MPC is 0.625. Assume there is a multiplier effect and that the total crowding-out effect is $12 billion. An increase in government purchases of $30 billion will shift aggregate demand to the

Accepted Answer

A)   left by $60 billion.
B)   left by $36 billion.
C)   right by $68 billion.
D)   right by $36 billion.E) A) and B)
F) A) and C)

Question 3

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

Question 4

During recessions, taxes tend to

Accepted Answer

A)   rise and thereby increase aggregate demand.
B)   rise and thereby decrease aggregate demand.
C)   fall and thereby increase aggregate demand.
D)   fall and thereby decrease aggregate demand.E) C) and D)
F) A) and B)

Question 5

Other things the same, automatic stabilizers tend to

Accepted Answer

A)   raise expenditures during expansions and recessions.
B)   lower expenditures during expansions and recessions.
C)   raise expenditures during recessions and lower expenditures during expansions.
D)   raise expenditures during expansions and lower expenditures during recessions.E) All of the above
F) None of the above

Question 6

People will want to hold more money if the price level

Accepted Answer

A)   or if the interest rate increases.
B)   or if the interest rate decreases.
C)   increases or if the interest rate decreases.
D)   decreases or if the interest rate increases.E) B) and D)
F) A) and B)

Question 7

During recessions, automatic stabilizers tend to make the government's budget

Accepted Answer

A)   move toward deficit.
B)   move toward surplus.
C)   move toward balance.
D)   not necessarily move the budget in any particular direction.E) All of the above
F) A) and C)

Question 8

The primary argument against active monetary and fiscal policy is that

Accepted Answer

A)   attempts to stabilize the economy do not constitute a proper role for government in a democratic society.
B)   these policies affect the economy with a long lag.
C)   these policies affect the economy too quickly and with too much impact.
D)   history demonstrates that interest rates respond unpredictably to active policies, leading to unpredictable effects on income.E) A) and D)
F) A) and C)

Question 9

Some economists, called supply-siders, argue that changes in the money supply exert a strong influence on aggregate supply.

Accepted Answer

A) True 
 B)False

Question 10

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) B) and C)
F) C) and D)

Question 11

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 D)

Question 12

The term crowding-out effect refers to

Accepted Answer

A)   the reduction in aggregate supply that results when a monetary expansion causes the interest rate to decrease.
B)   the reduction in aggregate demand that results when a monetary expansion causes the interest rate to decrease.
C)   the reduction in aggregate demand that results when a fiscal expansion causes the interest rate to increase.
D)   the reduction in aggregate demand that results when a decrease in government spending or an increase in taxes causes the interest rate to increase.E) B) and C)
F) A) and D)

Question 13

Figure 34-4. On the figure, MS represents money supply and MD represents money demand. 
-Refer to Figure 34-4. Which of the following events could explain a decrease in the equilibrium interest rate from r1 to r3?

Accepted Answer

A)   a decrease in the price level
B)   a decrease in the number of firms building new factories and buying new equipment
C)   an increase in the price level
D)   an increase in the number of firms building new factories and buying new equipmentE) A) and B)
F) B) and C)

Question 14

Which of the following is an example of crowding out?

Accepted Answer

A)   An increase in government spending increases interest rates, causing investment to fall.
B)   A decrease in private savings increases interest rates, causing investment to fall.
C)   A decrease in the money supply increases interest rates, causing investment to fall.
D)   An increase in taxes increases interest rates, causing investment to fall.E) None of the above
F) A) and C)

Question 15

If the multiplier is 6, then the MPC is

Accepted Answer

A)   0.16.
B)   0.83.
C)   0.71.
D)   0.86.E) C) and D)
F) None of the above

Question 16

Figure 34-5. On the figure, MS represents money supply and MD represents money demand. 
-Refer to Figure 34-5. A shift of the money-demand curve from MD2 to MD1 is consistent with which of the following sets of events?

Accepted Answer

A)   The government cuts taxes, resulting in an increase in people's incomes.
B)   The government reduces government spending, resulting in a decrease in people's incomes.
C)   The Federal Reserve increases the supply of money, which decreases the interest rate.
D)   All of the above are correct.E) None of the above
F) A) and B)

Question 17

Policymakers use _____ policy and _____ policy to stabilize _____ and _____ in the short run.

Accepted Answer

monetary, ...

Question 18

The Kennedy tax cut of 1964 was

Accepted Answer

A)   successful in stimulating the economy.
B)   designed to shift the aggregate demand curve to the right.
C)   designed to shift the aggregate supply curve to the right.
D)   All of the above are correct.E) B) and D)
F) C) and D)

Question 19

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 20

According to liquidity preference theory, a decrease in money demand for some reason other than a change in the price level causes

Accepted Answer

A)   the interest rate to fall, so aggregate demand shifts right.
B)   the interest rate to fall, so aggregate demand shifts left.
C)   the interest rate to rise, so aggregate demand shifts right.
D)   the interest rate to rise, so aggregate demand shifts left.E) A) and B)
F) C) and D)

Exam 24: The Influence of Monetary and Fiscal Policy on Aggregate Demand

Figure 34-5. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 34-5. A shift of the money-demand curve from MD2 to MD1 is consistent with which of the following sets of events?

Correct AnswerverifiedShow Answer

Figure 34-4. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 34-4. Which of the following events could explain a decrease in the equilibrium interest rate from r1 to r3?

Correct AnswerverifiedShow Answer

According to liquidity preference theory, an increase in the price level causes the interest rate to

Correct AnswerverifiedShow Answer

During recessions, automatic stabilizers tend to make the government's budget

Correct AnswerverifiedShow Answer

The primary argument against active monetary and fiscal policy is that

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following is an example of crowding out?

Correct AnswerverifiedShow Answer

Assume the MPC is 0.625. Assume there is a multiplier effect and that the total crowding-out effect is $12 billion. An increase in government purchases of $30 billion will shift aggregate demand to the

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

During recessions, taxes tend to

Correct AnswerverifiedShow Answer

According to liquidity preference theory, a decrease in money demand for some reason other than a change in the price level causes

Correct AnswerverifiedShow Answer

Policymakers use _____ policy and _____ policy to stabilize _____ and _____ in the short run.

Correct Answerverifiedmonetary, ...View AnswerShow 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

The Kennedy tax cut of 1964 was

Correct AnswerverifiedShow Answer

The term crowding-out effect refers to

Correct AnswerverifiedShow Answer

If the multiplier is 6, then the MPC is

Correct AnswerverifiedShow Answer

Other things the same, automatic stabilizers tend to

Correct AnswerverifiedShow Answer

People will want to hold more money if the price level

Correct AnswerverifiedShow Answer

Some economists, called supply-siders, argue that changes in the money supply exert a strong influence on aggregate supply.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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Policymakers use ___ policy and _ policy to stabilize _ and ___ in the short run.

Correct Answer
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monetary, ...
View Answer

Correct Answer
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