Question 1

The marginal propensity to consume MPC)  is defined as the fraction of

Accepted Answer

A)   extra income that a household consumes rather than saves.
B)   extra income that a household either consumes or saves.
C)   total income that a household consumes rather than saves.
D)   total income that a household either consumes or saves.E) A) and B)
F) All of the above

Question 2

According to the theory of liquidity preference,

Accepted Answer

A)   if the interest rate is below the equilibrium level, then the quantity of money people want to hold is less than the quantity of money the Fed has created.
B)   if the interest rate is above the equilibrium level, then the quantity of money people want to hold is greater than the quantity of money the Fed has created.
C)   the demand for money is represented by a downward-sloping line on a supply-and-demand graph.
D)   All of the above are correct.E) A) and B)
F) All of the above

Question 3

Figure 34-7 
-Refer to Figure 34-7. If the economy is at point b, a policy to restore full employment would be

Accepted Answer

A)   an increase in the money supply.
B)   a decrease in government purchases.
C)   an increase in taxes.
D)   All of the above are correct.E) All of the above
F) None of the above

Question 4

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 MD2. If the current interest rate is r2, then

Accepted Answer

A)   in response, the money-demand curve will shift rightward from its current position to establish equilibrium in the money market.
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)   there is a shortage of money.E) A) and D)
F) C) and D)

Question 5

Which of the following shifts aggregate demand to the right?

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

Question 6

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

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

Question 8

Imagine that the government increases its spending by $75 billion. Which of the following by itself would tend to make the change in aggregate demand different from $75 billion?

Accepted Answer

A)   both the multiplier effect and the crowding-out effect
B)   the multiplier effect, but not the crowding-out effect
C)   the crowding-out effect, but not the multiplier effect
D)   neither the crowding out effect nor the multiplier effectE) A) and D)
F) B) and C) A

Question 9

The Federal Funds rate is the interest rate

Accepted Answer

A)   banks charge each other for short-term loans.
B)   the Fed charges depository institutions for short-term loans.
C)   the Fed pays on deposits.
D)   interest rate on 3 month Treasury bills.E) A) and D)
F) None of the above

Question 10

Suppose there are both multiplier and crowding out effects but without any accelerator effects. An increase in government expenditures would definitely

Accepted Answer

A)   shift aggregate demand right by a larger amount than the increase in government expenditures.
B)   shift aggregate demand right by the same amount as the increase in government expenditures.
C)   shift aggregate demand right by a smaller amount than the increase in government expenditures.
D)   Any of the above outcomes are possible.E) A) and C)
F) B) and D)

Question 11

Opponents of active stabilization policy

Accepted Answer

A)   generally don't believe, even in theory, that fiscal policy can stabilize the economy.
B)   generally agree that fiscal policy has no impact in the long run.
C)   believe some effects of monetary policy may be long-lived.
D)   think the Fed should simply try to fine tune the economy.E) C) and D)
F) B) and D)

Question 12

The idea that aggregate demand fluctuates due to irrational waves of pessimism by households and firms is known as _____.

Accepted Answer

The answer of The idea that aggregate demand fluctuates due...

Question 13

In the short run,

Accepted Answer

A)   the price level alone adjusts to balance the supply and demand for money.
B)   output responds to changes in the aggregate demand for goods and services.
C)   changes in the money supply cause a proportional change in the price level.
D)   increases in the money supply shift the aggregate supply curve causing output to rise.E) C) and D)
F) B) and D)

Question 14

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

Accepted Answer

monetary, ...

Question 15

A European recession that reduces U.S. net exports by $50 billion may ultimately lead to a $_____ billion reduction in aggregate demand if the MPC is 0.75.

Accepted Answer

The answer of A European recession that reduces U.S. net...

Question 16

Government purchases are said to have a

Accepted Answer

A)   multiplier effect on aggregate supply.
B)   multiplier effect on aggregate demand.
C)   liquidity-enhancing effect on aggregate supply.
D)   liquidity-enhancing effect on aggregate demand.E) A) and C)
F) All of the above

Question 17

The goal of monetary policy and fiscal policy is to

Accepted Answer

A)   offset the shifts in aggregate demand and thereby eliminate unemployment.
B)   offset shifts in aggregate demand and thereby stabilize the economy.
C)   enhance the shifts in aggregate demand and thereby create fluctuations in output and employment.
D)   enhance the shifts in aggregate demand and thereby increase economic growthE) None of the above
F) All of the above

Question 18

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 graphs apply to an economy such as the U.S. economy, then the slope of the AD curve is primarily attributable to the

Accepted Answer

A)   wealth effect.
B)   interest-rate effect.
C)   exchange-rate effect.
D)   Fisher effect.E) B) and C)
F) A) and C)

Question 19

An increase in the money supply decreases the interest rate in the short run.

Accepted Answer

A) True 
 B)False

Question 20

Monetary policy affects the economy with a long lag, in part because

Accepted Answer

A)   proposals to change monetary policy must go through both the House and Senate before being sent to the president.
B)   monetary policy works through changes in interest rates, and the Fed does not have the ability to change interest rates quickly.
C)   changes in interest rates primarily influence consumption spending, and households make consumption plans far in advance.
D)   changes in interest rates primarily influence investment spending, and firms make investment plans far in advance.E) All of the above
F) A) and B)

Exam 21: The Influence of Monetary and Fiscal Policy on Aggregate Demand

The marginal propensity to consume MPC) is defined as the fraction of

Correct Answer
verified

According to the theory of liquidity preference,

Correct Answer
verified

Figure 34-7 -Refer to Figure 34-7. If the economy is at point b, a policy to restore full employment would be

Correct Answer
verified

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 MD2. If the current interest rate is r2, then

Correct Answer
verified

Which of the following shifts aggregate demand to the right?

Correct Answer
verified
B

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

Correct Answer
verified

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 Answer
verified
B

Imagine that the government increases its spending by $75 billion. Which of the following by itself would tend to make the change in aggregate demand different from $75 billion?

Correct Answer
verified
A

The Federal Funds rate is the interest rate

Correct Answer
verified

Suppose there are both multiplier and crowding out effects but without any accelerator effects. An increase in government expenditures would definitely

Correct Answer
verified

Opponents of active stabilization policy

Correct Answer
verified

The idea that aggregate demand fluctuates due to irrational waves of pessimism by households and firms is known as _____.

Correct Answer
verified

In the short run,

Correct Answer
verified

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

Correct Answer
verified
monetary, ...
View Answer

A European recession that reduces U.S. net exports by $50 billion may ultimately lead to a $_____ billion reduction in aggregate demand if the MPC is 0.75.

Correct Answer
verified

Government purchases are said to have a

Correct Answer
verified

The goal of monetary policy and fiscal policy is to

Correct Answer
verified

Correct Answer
verified

An increase in the money supply decreases the interest rate in the short run.

Correct Answer
verified

Monetary policy affects the economy with a long lag, in part because

Correct Answer
verified

Exam 21: The Influence of Monetary and Fiscal Policy on Aggregate Demand

The marginal propensity to consume MPC) is defined as the fraction of

Correct AnswerverifiedShow Answer

According to the theory of liquidity preference,

Correct AnswerverifiedShow Answer

Figure 34-7 -Refer to Figure 34-7. If the economy is at point b, a policy to restore full employment would be

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 MD2. If the current interest rate is r2, then

Correct AnswerverifiedShow Answer

Which of the following shifts aggregate demand to the right?

Correct AnswerverifiedB

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

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 AnswerverifiedB

Imagine that the government increases its spending by $75 billion. Which of the following by itself would tend to make the change in aggregate demand different from $75 billion?

Correct AnswerverifiedA

The Federal Funds rate is the interest rate

Correct AnswerverifiedShow Answer

Suppose there are both multiplier and crowding out effects but without any accelerator effects. An increase in government expenditures would definitely

Correct AnswerverifiedShow Answer

Opponents of active stabilization policy

Correct AnswerverifiedShow Answer

The idea that aggregate demand fluctuates due to irrational waves of pessimism by households and firms is known as _____.

Correct AnswerverifiedShow Answer

In the short run,

Correct AnswerverifiedShow Answer

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

Correct Answerverifiedmonetary, ...View AnswerShow Answer

A European recession that reduces U.S. net exports by $50 billion may ultimately lead to a $_____ billion reduction in aggregate demand if the MPC is 0.75.

Correct AnswerverifiedShow Answer

Government purchases are said to have a

Correct AnswerverifiedShow Answer

The goal of monetary policy and fiscal policy is to

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

An increase in the money supply decreases the interest rate in the short run.

Correct AnswerverifiedShow Answer

Monetary policy affects the economy with a long lag, in part because

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
B

Correct Answer
verified

Correct Answer
verified
B

Correct Answer
verified
A

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified
monetary, ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified