Question 1

If the Fed conducts open-market sales, which of the following quantities increases) ?

Accepted Answer

A)   interest rates, prices, and investment spending
B)   interest rates and prices, but not investment spending
C)   interest rates and investment, but not prices
D)   interest rates, but not investment or pricesE) B) and C)
F) A) and D)

Question 2

Suppose households attempt to increase money holdings. To stabilize output and employment, the Federal Reserve will .

Accepted Answer

increase t...

Question 3

Which of the following correctly explains the crowding-out effect?

Accepted Answer

A)   An increase in government expenditures decreases the interest rate and so increases investment spending.
B)   An increase in government expenditures increases the interest rate and so reduces investment spending.
C)   A decrease in government expenditures increases the interest rate and so increases investment spending.
D)   A decrease in government expenditures decreases the interest rate and so reduces investment spending.E) B) and C)
F) None of the above

Question 4

Which of the following properly describes the interest-rate effect that helps explain the slope of the aggregate- demand curve?

Accepted Answer

A)   As the money supply increases, the interest rate falls, so spending rises.
B)   As the money supply increases, the interest rate rises, so spending falls.
C)   As the price level increases, the interest rate falls, so spending rises.
D)   As the price level increases, the interest rate rises, so spending falls.E) B) and C)
F) A) and B)

Question 5

Sometimes, changes in monetary policy and/or fiscal policy are intended to offset changes to aggregate demand over which policymakers have little or no control.

Accepted Answer

A) True 
 B)False

Question 6

If the interest rate is below the Fed's target, the Fed would

Accepted Answer

A)   buy bonds to increase the money supply.
B)   buy bonds to decrease the money supply.
C)   sell bonds to increase the money supply.
D)   sell bonds to decrease the money supply.E) B) and C)
F) A) and B)

Question 7

Which of the following shifts aggregate demand to the left?

Accepted Answer

A)   an increase in the price level
B)   an increase in the money supply
C)   a decrease in the price level
D)   a decrease in the money supplyE) B) and D)
F) A) and C)

Question 8

In which of the following cases does the aggregate-demand curve shift to the right?

Accepted Answer

A)   The price level rises, causing the interest rate to fall.
B)   The price level falls, causing the interest rate to fall.
C)   The money supply increases, causing the interest rate to fall.
D)   The money supply decreases, causing the interest rate to fall.E) C) and D)
F) B) and D)

Question 9

During the economic downturn of 2008-2009, the Federal Reserve

Accepted Answer

A)   used open-market operations to purchase mortgages and corporate debt, just as it frequently does even when the economy is functioning normally.
B)   took the unusual step of using open-market operations to purchase mortgages and corporate debt.
C)   explicitly set its target rate of inflation at zero.
D)   explicitly set its target rate of inflation well above zero.E) C) and D)
F) None of the above

Question 10

Figure 34-4. On the figure, MS represents money supply and MD represents money demand. 
-Refer to Figure 34-4. Suppose the money-demand curve is currently MD1. If the current interest rate is r2, then

Accepted Answer

A)   the quantity of money that people want to hold is less than the quantity of money that the Federal Reserve has supplied.
B)   people will respond by selling interest-bearing bonds or by withdrawing money from interest-bearing bank accounts.
C)   bond issuers and banks will respond by lowering the interest rates they offer.
D)   in response, the money-demand curve will shift rightward from its current position to establish equilibrium in the money market.E) B) and D)
F) All of the above

Question 11

Most recessions and depressions

Accepted Answer

A)   are accurately forecasted.
B)   usually occur with ample advance warning.
C)   cause falling unemployment.
D)   occur with little advance warning.E) B) and C)
F) A) and D)

Question 12

The exchange-rate effect is based, in part, on the idea that

Accepted Answer

A)   a decrease in the price level reduces the interest rate.
B)   an increase in the price level causes investors to move some of their funds overseas.
C)   an increase in the price level causes domestic goods to become less expensive relative to foreign goods.
D)   a decrease in the price level reduces spending on net exports.E) None of the above
F) A) and B)

Question 13

A decrease in the domestic _____ causes domestic goods to become less expensive relative to foreign goods and increases net exports. The increase in net exports causes an) _____ in the quantity of domestic aggregate goods and services demanded and is known as the _____ effect.

Accepted Answer

price leve...

Question 14

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) All of the above
F) A) and B)

Question 15

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

Question 16

If the MPC is 0.8 and there are no crowding-out or accelerator effects, then an initial increase in aggregate demand of $120 billion will eventually shift the aggregate demand curve to the right by

Accepted Answer

A)   $216 billion.
B)   $150 billion.
C)   $600 billion.
D)   $480 billion.E) A) and D)
F) B) and C)

Question 17

When the money supply increases, there is an excess _____ of money. As a result, interest rates _____ and aggregate demand _____.

Accepted Answer

supply, fa...

Question 18

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

Question 19

Assuming a multiplier effect, but no crowding-out or investment-accelerator effects, a $100 billion increase in government expenditures shifts aggregate

Accepted Answer

A)   demand rightward by more than $100 billion.
B)   demand rightward by less than $100 billion.
C)   supply leftward by more than $100 billion.
D)   supply leftward by less than $100 billion.E) None of the above
F) A) and B)

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

If the Fed conducts open-market sales, which of the following quantities increases) ?

Correct AnswerverifiedShow Answer

Which of the following properly describes the interest-rate effect that helps explain the slope of the aggregate- demand curve?

Correct AnswerverifiedShow Answer

Figure 34-4. On the figure, MS represents money supply and MD represents money demand. -Refer to Figure 34-4. Suppose the money-demand curve is currently MD1. If the current interest rate is r2, then

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In which of the following cases does the aggregate-demand curve shift to the right?

Correct AnswerverifiedShow Answer

If the MPC is 0.8 and there are no crowding-out or accelerator effects, then an initial increase in aggregate demand of $120 billion will eventually shift the aggregate demand curve to the right by

Correct AnswerverifiedShow Answer

During the economic downturn of 2008-2009, the Federal Reserve

Correct AnswerverifiedShow Answer

Which of the following shifts aggregate demand to the left?

Correct AnswerverifiedShow Answer

Most recessions and depressions

Correct AnswerverifiedShow Answer

A decrease in the domestic _____ causes domestic goods to become less expensive relative to foreign goods and increases net exports. The increase in net exports causes an) _____ in the quantity of domestic aggregate goods and services demanded and is known as the _____ effect.

Correct Answerverifiedprice leve...View AnswerShow Answer

Sometimes, changes in monetary policy and/or fiscal policy are intended to offset changes to aggregate demand over which policymakers have little or no control.

Correct AnswerverifiedShow Answer

Assuming a multiplier effect, but no crowding-out or investment-accelerator effects, a $100 billion increase in government expenditures shifts aggregate

Correct AnswerverifiedShow Answer

Which of the following correctly explains the crowding-out effect?

Correct AnswerverifiedShow Answer

The exchange-rate effect is based, in part, on the idea that

Correct AnswerverifiedShow Answer

According to the theory of liquidity preference, if output decreases

Correct AnswerverifiedShow Answer

When the money supply increases, there is an excess _____ of money. As a result, interest rates _____ and aggregate demand _____.

Correct Answerverifiedsupply, fa...View AnswerShow Answer

Suppose households attempt to increase money holdings. To stabilize output and employment, the Federal Reserve will .

Correct Answerverifiedincrease t...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

If the interest rate is below the Fed's target, the Fed would

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

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A decrease in the domestic ___ causes domestic goods to become less expensive relative to foreign goods and increases net exports. The increase in net exports causes an) _ in the quantity of domestic aggregate goods and services demanded and is known as the ___ effect.

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price leve...
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When the money supply increases, there is an excess ___ of money. As a result, interest rates _ and aggregate demand ___.

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supply, fa...
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increase t...
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