Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

In 1961, President John F. Kennedy, acting upon advice from his economists, proposed tax cuts. The advice he received

Accepted Answer

A)   was opposed to the teaching of Keynes, who had taught that tax cuts were counterproductive.
B)   was opposed to the teaching of Keynes, who had taught that all attempts to stabilize the economy were futile.
C)   came from economists who had studied Keynes's ideas when those ideas were only a few years old.
D)   came from economists who were unaware of Keynes's ideas because those ideas had not yet been widely disseminated at that time.E) B) and C)
F) None of the above

Question 3

In the graph of the money market, the money supply curve is

Accepted Answer

A)   vertical. It shifts rightward if the Fed buys bonds.
B)   vertical. It shifts rightward if the Fed sells bonds.
C)   upward sloping. It shifts rightward if the Fed buys bonds.
D)   upward sloping. It shifts rightward if the Fed sells bonds.E) B) and C)
F) B) and D)

Question 4

In a certain economy, when income is $1000, consumer spending is $800. The value of the multiplier for this economy is 2.5. It follows that, when income is $1020, consumer spending is

Accepted Answer

A)   $816. For this economy, an initial increase of $100 in consumer spending translates into a $250 increase in aggregate demand.
B)   $816. For this economy, an initial increase of $100 in consumer spending translates into a $400 increase in aggregate demand.
C)   $812. For this economy, an initial increase of $100 in consumer spending translates into a $250 increase in aggregate demand.
D)   $812. For this economy, an initial increase of $100 in consumer spending translates into an $800 increase in aggregate demand.E) All of the above
F) A) and B)

Question 5

As the MPC gets close to 1, the value of the multiplier approaches

Accepted Answer

A)   0.
B)   1.
C)   infinity.
D)   None of the above is correct.E) None of the above
F) All of the above

Question 6

Figure 34-2. 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 34-2. If the money-supply curve MS on the left-hand graph were to shift to the left, this would

Accepted Answer

A)   represent an action taken by the Federal Reserve.
B)   shift the AD curve to the left.
C)   create, until the interest rate adjusted, an excess demand for money at the interest rate that equilibrated the money market before the shift.
D)   All of the above are correct.E) A) and D)
F) B) and C)

Question 7

Figure 34-3 
-Refer to Figure 34-3. For an economy such as the United States, what component of the demand for goods and services is most responsible for the decrease in output from Y1 to Y2?

Accepted Answer

A)   consumption
B)   investment
C)   net exports
D)   government spendingE) C) and D)
F) B) and D)

Question 8

Suppose there was a large increase in net exports. If the Fed wanted to stabilize output, it could

Accepted Answer

A)   increase the money supply, which will reduce interest rates.
B)   decrease the money supply, which will reduce interest rates.
C)   increase the money supply, which will increase interest rates.
D)   decrease the money supply, which will increase interest rates.E) B) and D)
F) A) and D)

Question 9

A severe problem that many economists have with the active use of monetary policy and fiscal policy to stabilize the economy is that, while those policies obviously work well in practice, they are not well understood on a theoretical level.

Accepted Answer

A) True 
 B)False

Question 10

The logic of the multiplier effect applies

Accepted Answer

A)   only to changes in government spending.
B)   to any change in spending on any component of GDP.
C)   only to changes in the money supply.
D)   only when the crowding-out effect is sufficiently strong.E) A) and D)
F) C) and D)

Question 11

Suppose a wave of optimism causes firms to increase investment. To stabilize output and employment, the Federal Reserve will .

Accepted Answer

decrease t...

Question 12

According to the theory of liquidity preference, money demand

Accepted Answer

A)   and the money supply are positively related to the interest rate.
B)   and the money supply are negatively related to the interest rate.
C)   is negatively related to the interest rate, while the money supply is independent of the interest rate.
D)   is independent of the interest rate, while money supply is negatively related to the interest rate.E) A) and D)
F) A) and C)

Question 13

An open-market purchase by the Federal Reserve creates an excess _____ of money. This causes interest rates to _____ and investment to _____. The change in investment causes aggregate demand to shift to the _____.

Accepted Answer

supply, fa...

Question 14

Liquidity preference theory is most relevant to the

Accepted Answer

A)   short run and supposes that the price level adjusts to bring money supply and money demand into balance.
B)   short run and supposes that the interest rate adjusts to bring money supply and money demand into balance.
C)   long run and supposes that the price level adjusts to bring money supply and money demand into balance.
D)   long run and supposes that the interest rate adjusts to bring money supply and money demand into balance.E) A) and B)
F) All of the above

Question 15

An increase in households' desired money holding causes an) _____ in interest rates. This causes an) _____ in investment spending and aggregate demand.

Accepted Answer

The answer of An increase in households' desired money holding...

Question 16

If the MPC is 4/5, the multiplier is 5/4.

Accepted Answer

A) True 
 B)False

Question 17

Figure 34-11 
-Refer to Figure 34-11. The economy is currently at point A. To stabilize output, the president and Congress can reduce __________ and/or increase _____.

Accepted Answer

government...

Question 18

To stabilize output, the Federal Reserve will the money supply when aggregate demand falls.

Accepted Answer

The answer of To stabilize output, the Federal Reserve will...

Question 19

If the multiplier is 3, then the MPC is

Accepted Answer

A)   1/3.
B)   3/4.
C)   4/3.
D)   2/3.E) C) and D)
F) B) and C)

Question 20

When the Fed increases the money supply, the interest rate decreases. This decrease in the interest rate increases consumption and investment demand, so the aggregate-demand curve shifts to the right.

Accepted Answer

A) True 
 B)False

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

As the MPC gets close to 1, the value of the multiplier approaches

Correct Answer
verified

The logic of the multiplier effect applies

Correct Answer
verified

An increase in households' desired money holding causes an) _ in interest rates. This causes an) _ in investment spending and aggregate demand.

Correct Answer
verified

Suppose a wave of optimism causes firms to increase investment. To stabilize output and employment, the Federal Reserve will .

Correct Answer
verified
decrease t...
View Answer

In a certain economy, when income is $1000, consumer spending is $800. The value of the multiplier for this economy is 2.5. It follows that, when income is $1020, consumer spending is

Correct Answer
verified

According to the theory of liquidity preference, money demand

Correct Answer
verified

If the multiplier is 3, then the MPC is

Correct Answer
verified

To stabilize output, the Federal Reserve will the money supply when aggregate demand falls.

Correct Answer
verified

Correct Answer
verified

In the graph of the money market, the money supply curve is

Correct Answer
verified

If the MPC is 4/5, the multiplier is 5/4.

Correct Answer
verified

An open-market purchase by the Federal Reserve creates an excess ___ of money. This causes interest rates to _ and investment to _. The change in investment causes aggregate demand to shift to the ___.

Correct Answer
verified
supply, fa...
View Answer

In 1961, President John F. Kennedy, acting upon advice from his economists, proposed tax cuts. The advice he received

Correct Answer
verified

Liquidity preference theory is most relevant to the

Correct Answer
verified

Suppose there was a large increase in net exports. If the Fed wanted to stabilize output, it could

Correct Answer
verified

Figure 34-3 -Refer to Figure 34-3. For an economy such as the United States, what component of the demand for goods and services is most responsible for the decrease in output from Y1 to Y2?

Correct Answer
verified

When the Fed increases the money supply, the interest rate decreases. This decrease in the interest rate increases consumption and investment demand, so the aggregate-demand curve shifts to the right.

Correct Answer
verified

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

Correct Answer
verified

A severe problem that many economists have with the active use of monetary policy and fiscal policy to stabilize the economy is that, while those policies obviously work well in practice, they are not well understood on a theoretical level.

Correct Answer
verified

Figure 34-11 -Refer to Figure 34-11. The economy is currently at point A. To stabilize output, the president and Congress can reduce ______ and/or increase _.

Correct Answer
verified
government...
View Answer

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

As the MPC gets close to 1, the value of the multiplier approaches

Correct AnswerverifiedShow Answer

The logic of the multiplier effect applies

Correct AnswerverifiedShow Answer

An increase in households' desired money holding causes an) _____ in interest rates. This causes an) _____ in investment spending and aggregate demand.

Correct AnswerverifiedShow Answer

Suppose a wave of optimism causes firms to increase investment. To stabilize output and employment, the Federal Reserve will .

Correct Answerverifieddecrease t...View AnswerShow Answer

In a certain economy, when income is $1000, consumer spending is $800. The value of the multiplier for this economy is 2.5. It follows that, when income is $1020, consumer spending is

Correct AnswerverifiedShow Answer

According to the theory of liquidity preference, money demand

Correct AnswerverifiedShow Answer

If the multiplier is 3, then the MPC is

Correct AnswerverifiedShow Answer

To stabilize output, the Federal Reserve will the money supply when aggregate demand falls.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In the graph of the money market, the money supply curve is

Correct AnswerverifiedShow Answer

If the MPC is 4/5, the multiplier is 5/4.

Correct AnswerverifiedShow Answer

An open-market purchase by the Federal Reserve creates an excess _____ of money. This causes interest rates to _____ and investment to _____. The change in investment causes aggregate demand to shift to the _____.

Correct Answerverifiedsupply, fa...View AnswerShow Answer

In 1961, President John F. Kennedy, acting upon advice from his economists, proposed tax cuts. The advice he received

Correct AnswerverifiedShow Answer

Liquidity preference theory is most relevant to the

Correct AnswerverifiedShow Answer

Suppose there was a large increase in net exports. If the Fed wanted to stabilize output, it could

Correct AnswerverifiedShow Answer

Figure 34-3 -Refer to Figure 34-3. For an economy such as the United States, what component of the demand for goods and services is most responsible for the decrease in output from Y1 to Y2?

Correct AnswerverifiedShow Answer

When the Fed increases the money supply, the interest rate decreases. This decrease in the interest rate increases consumption and investment demand, so the aggregate-demand curve shifts to the right.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A severe problem that many economists have with the active use of monetary policy and fiscal policy to stabilize the economy is that, while those policies obviously work well in practice, they are not well understood on a theoretical level.

Correct AnswerverifiedShow Answer

Figure 34-11 -Refer to Figure 34-11. The economy is currently at point A. To stabilize output, the president and Congress can reduce __________ and/or increase _____.

Correct Answerverifiedgovernment...View AnswerShow Answer

Correct Answer
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Correct Answer
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An increase in households' desired money holding causes an) _ in interest rates. This causes an) _ in investment spending and aggregate demand.

Correct Answer
verified

Correct Answer
verified
decrease t...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

An open-market purchase by the Federal Reserve creates an excess ___ of money. This causes interest rates to _ and investment to _. The change in investment causes aggregate demand to shift to the ___.

Correct Answer
verified
supply, fa...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

Figure 34-11 -Refer to Figure 34-11. The economy is currently at point A. To stabilize output, the president and Congress can reduce ______ and/or increase _.

Correct Answer
verified
government...
View Answer