Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

The idea that a decrease in the price level raises the real value of households' money holdings, which increases consumer spending and the quantity of goods and services demanded is known as

Accepted Answer

A)   the interest-rate effect.
B)   the exchange-rate effect.
C)   the theory of liquidity preference.
D)   the wealth effect.E) A) and D)
F) A) and C)

Question 3

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. As we move from one point to another along the money-demand curve MD1,

Accepted Answer

A)   the price level is held fixed at P1.
B)   the interest rate is held fixed at r1.
C)   the money supply is changing so as to keep the money market in equilibrium.
D)   the expected inflation rate is changing so as to keep the real interest rate constant.E) None of the above
F) C) and D)

Question 4

The theory of liquidity preference was developed by Irving Fisher.

Accepted Answer

A) True 
 B)False

Question 5

The wealth effect helps explain the slope of the aggregate-demand curve. This effect is

Accepted Answer

A)   relatively important in the United States because expenditures on consumer durables is very responsive to changes in wealth.
B)   relatively important in the United States because consumption spending is a large part of GDP.
C)   relatively unimportant in the United States because money holdings are a small part of consumer wealth.
D)   relatively unimportant because it takes a large change in wealth to cause a significant change in interest rates.E) B) and D)
F) A) and B)

Question 6

In principle, the government could increase the money supply or increase government expenditures to try to offset the effects of a wave of pessimism about the future of the economy.

Accepted Answer

A) True 
 B)False

Question 7

According to liquidity preference theory, the money-supply curve would shift if the Fed

Accepted Answer

A)   engaged in open-market operations.
B)   increased money demand.
C)   increase the real income.
D)   did any of the above.E) A) and D)
F) B) and D)

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 C)

Question 9

In order to simplify the equation for the multiplier to its familiar, relatively simple form, we make use of the

Accepted Answer

A)   assumption that increases in government purchases have no effect on consumer spending.
B)   assumption that the feedback effects associated with changes in government purchases become negligible after two or three rounds of spending have occurred.
C)   empirical evidence that points to a value of about 3/4 for the MPC.
D)   fact that the multiplier effect is represented by an infinite geometric series.E) A) and B)
F) All of the above

Question 10

According to classical macroeconomic theory,

Accepted Answer

A)   the price level is sticky in the short run and it plays only a minor role in the short-run adjustment process.
B)   for any given level of output, the interest rate adjusts to balance the supply of, and demand for, money.
C)   output is determined by the supplies of capital and labor and the available production technology.
D)   All of the above are correct.E) B) and C)
F) None of the above

Question 11

Scenario 34-2. The following facts apply to a small, imaginary economy.
• Consumption spending is $6,720 when income is $8,000.
• Consumption spending is $7,040 when income is $8,500.
-Refer to Scenario 34-2. The multiplier for this economy is

Accepted Answer

A)   1.31.
B)   6.25.
C)   2.78.
D)   2.27.E) B) and C)
F) None of the above

Question 12

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

Accepted Answer

A)   right by more than $100 billion.
B)   right by $100 billion.
C)   left by more than $100 billion.
D)   left by $100 billion.E) B) and D)
F) B) and C)

Question 13

An increase in government purchases is likely to

Accepted Answer

A)   decrease interest rates.
B)   reduce money demand.
C)   crowd out investment spending by business firms.
D)   All of the above are correct.E) All of the above
F) A) and B)

Question 14

If there is excess money supply, people will

Accepted Answer

A)   deposit more into interest-bearing accounts, and the interest rate will fall.
B)   deposit more into interest-bearing accounts, and the interest rate will rise.
C)   withdraw money from interest-bearing accounts, and the interest rate will fall.
D)   withdraw money from interest-bearing accounts, and the interest rate will rise.E) A) and B)
F) None of the above

Question 15

Figure 34-12 
-Refer to Figure 34-12. Suppose the multiplier is 5 and the economy is currently at point A. To stabilize output at $1000, the government should _____ purchases by $_____.

Accepted Answer

The answer of Figure 34-12 
-Refer to Figure 34-12. Suppose...

Question 16

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 multiplier is 5 and the government increases its purchases by $15 billion. Also, suppose the AD curve would shift from AD1 to AD2 if there were no crowding out; the AD curve actually shifts from AD1 to AD3 with crowding out. Also, suppose the horizontal distance between the curves AD1 and AD3 is $55 billion. The extent of crowding out, for any particular level of the price level, is

Accepted Answer

A)   $75 billion.
B)   $40 billion.
C)   $30 billion.
D)   $20 billion.E) All of the above
F) A) and C)

Question 17

According to the interest-rate effect, an increase in the price level will

Accepted Answer

A)   increase money demand and interest rates. Investment declines.
B)   increase money demand and interest rates. Investment increases.
C)   increase money demand, reduce interest rates, and investment increases.
D)   decrease money demand and interest rates. Investment declines.E) All of the above
F) C) and D)

Question 18

If the Fed increases the money supply,

Accepted Answer

A)   the interest rate increases, which tends to raise stock prices.
B)   the interest rate increases, which tends to reduce stock prices.
C)   the interest rate decreases, which tends to raise stock prices.
D)   the interest rate decreases, which tends to reduce stock prices.E) B) and C)
F) A) and C)

Question 19

The potential positive feedback that government spending may have on investment is known as the _____. The potential negative effect that government spending may have on investment is known as the _____ effect.

Accepted Answer

investment...

Question 20

Initially, the economy is in long-run equilibrium. The aggregate demand curve then shifts $80 billion to the left. The government wants to change spending to offset this decrease in demand. The MPC is 0.75. Suppose the effect on aggregate demand of a tax change is 3/4 as strong as the effect of a change in government expenditure. There is no crowding out and no accelerator effect. What should the government do if it wants to offset the decrease in real GDP?

Accepted Answer

A)   Raise both taxes and expenditures by $80 billion dollars.
B)   Raise both taxes and expenditures by $10 billion dollars.
C)   Reduce both taxes and expenditures by $80 billion dollars.
D)   Reduce both taxes and expenditures by $10 billion dollars.E) A) and B)
F) B) and C)

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

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

Correct Answer
verified

An increase in government purchases is likely to

Correct Answer
verified

The theory of liquidity preference was developed by Irving Fisher.

Correct Answer
verified

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

Correct Answer
verified

In principle, the government could increase the money supply or increase government expenditures to try to offset the effects of a wave of pessimism about the future of the economy.

Correct Answer
verified

The idea that a decrease in the price level raises the real value of households' money holdings, which increases consumer spending and the quantity of goods and services demanded is known as

Correct Answer
verified

The wealth effect helps explain the slope of the aggregate-demand curve. This effect is

Correct Answer
verified

According to liquidity preference theory, the money-supply curve would shift if the Fed

Correct Answer
verified

Scenario 34-2. The following facts apply to a small, imaginary economy. • Consumption spending is $6,720 when income is $8,000. • Consumption spending is $7,040 when income is $8,500. -Refer to Scenario 34-2. The multiplier for this economy is

Correct Answer
verified

According to the interest-rate effect, an increase in the price level will

Correct Answer
verified

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

Correct Answer
verified

If there is excess money supply, people will

Correct Answer
verified

Correct Answer
verified

If the Fed increases the money supply,

Correct Answer
verified

The potential positive feedback that government spending may have on investment is known as the _. The potential negative effect that government spending may have on investment is known as the _ effect.

Correct Answer
verified
investment...
View Answer

In order to simplify the equation for the multiplier to its familiar, relatively simple form, we make use of the

Correct Answer
verified

Correct Answer
verified

Figure 34-12 -Refer to Figure 34-12. Suppose the multiplier is 5 and the economy is currently at point A. To stabilize output at $1000, the government should _ purchases by $_.

Correct Answer
verified

Correct Answer
verified

According to classical macroeconomic theory,

Correct Answer
verified

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

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

Correct AnswerverifiedShow Answer

An increase in government purchases is likely to

Correct AnswerverifiedShow Answer

The theory of liquidity preference was developed by Irving Fisher.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In principle, the government could increase the money supply or increase government expenditures to try to offset the effects of a wave of pessimism about the future of the economy.

Correct AnswerverifiedShow Answer

The idea that a decrease in the price level raises the real value of households' money holdings, which increases consumer spending and the quantity of goods and services demanded is known as

Correct AnswerverifiedShow Answer

The wealth effect helps explain the slope of the aggregate-demand curve. This effect is

Correct AnswerverifiedShow Answer

According to liquidity preference theory, the money-supply curve would shift if the Fed

Correct AnswerverifiedShow Answer

Scenario 34-2. The following facts apply to a small, imaginary economy. • Consumption spending is $6,720 when income is $8,000. • Consumption spending is $7,040 when income is $8,500. -Refer to Scenario 34-2. The multiplier for this economy is

Correct AnswerverifiedShow Answer

According to the interest-rate effect, an increase in the price level will

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If there is excess money supply, people will

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If the Fed increases the money supply,

Correct AnswerverifiedShow Answer

The potential positive feedback that government spending may have on investment is known as the _____. The potential negative effect that government spending may have on investment is known as the _____ effect.

Correct Answerverifiedinvestment...View AnswerShow Answer

In order to simplify the equation for the multiplier to its familiar, relatively simple form, we make use of the

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Figure 34-12 -Refer to Figure 34-12. Suppose the multiplier is 5 and the economy is currently at point A. To stabilize output at $1000, the government should _____ purchases by $_____.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

According to classical macroeconomic theory,

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

The potential positive feedback that government spending may have on investment is known as the _. The potential negative effect that government spending may have on investment is known as the _ effect.

Correct Answer
verified
investment...
View Answer

Correct Answer
verified

Correct Answer
verified

Figure 34-12 -Refer to Figure 34-12. Suppose the multiplier is 5 and the economy is currently at point A. To stabilize output at $1000, the government should _ purchases by $_.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified