Question 1

The crowding-out effect occurs because an increase in government spending _____ interest rates, causing _____ to fall.

Accepted Answer

increases,...

Question 2

The interest rate that the Federal Reserve pays banks on the reserves they hold is called the

Accepted Answer

A)   open-market rate.
B)   discount rate.
C)   preference rate.
D)   None of the above are correct.E) A) and C)
F) C) and D)

Question 3

To decrease the interest rate the Federal Reserve could

Accepted Answer

A)   buy bonds. The fall in the interest rate would increase investment spending.
B)   buy bonds. The fall in the interest rate would decrease investment spending.
C)   sell bonds. The fall in the interest rate would increase investment spending
D)   sell bonds. The fall in the interest rate would decrease investment spending.E) A) and B)
F) None of the above

Question 4

A 2009 article in The Economist noted that

Accepted Answer

A)   recent research has allowed economists to estimate the values of fiscal multipliers with a great deal of precision.
B)   research on multipliers indicates that multipliers for permanent tax cuts tend to be smaller than multipliers for temporary tax cuts.
C)   most of the evidence on multipliers for government spending is based on changes in military expenditures.
D)   All of the above are correct.E) All of the above
F) C) and D)

Question 5

Other things the same, which of the following responses would we expect from an increase in U.S. interest rates?

Accepted Answer

A)   Your aunt puts more money in her savings account.
B)   Foreign citizens decide to buy fewer U.S. bonds.
C)   You decide to purchase a new oven for your cookie factory.
D)   All of the above are correct.E) C) and D)
F) B) and C)

Question 6

In the long run, fiscal policy influences

Accepted Answer

A)   saving, investment, and growth; in the short run, fiscal policy primarily influences technology and the production function.
B)   saving, investment, and growth; in the short run, fiscal policy primarily influences the aggregate demand for goods and services.
C)   technology and the production function; in the short run, fiscal policy primarily influences saving, investment, and growth.
D)   the aggregate demand for goods and services; in the short run, fiscal policy primarily influences technology and the production function.E) B) and D)
F) C) and D)

Question 7

The opportunity cost of holding money

Accepted Answer

A)   decreases when the interest rate decreases, so people desire to hold more of it.
B)   decreases when the interest rate decreases, so people desire to hold less of it.
C)   increases when the interest rate decreases, so people desire to hold more of it.
D)   increases when the interest rate decreases, so people desire to hold less of it.E) C) and D)
F) B) and C)

Question 8

The change in aggregate demand that results from fiscal expansion changing the interest rate is called the

Accepted Answer

A)   multiplier effect.
B)   crowding-out effect.
C)   accelerator effect.
D)   Ricardian equivalence effect.E) A) and B)
F) B) and C)

Question 9

Which of the following events would shift money demand to the left?

Accepted Answer

A)   an increase in the price level
B)   a decrease in the price level
C)   an increase in the interest rate
D)   a decrease in the interest rateE) A) and B)
F) A) and C)

Question 10

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) None of the above

Question 11

If expected inflation is constant and the nominal interest rate decreases by 2 percentage points, then the real interest rate

Accepted Answer

A)   increases by 2 percentage points.
B)   increases, but by less than 2 percentage points.
C)   decreases, but by less than 2 percentage points.
D)   decreases by 2 percentage points.E) All of the above
F) C) and D)

Question 12

For the U.S. economy, the most important reason for the downward slope of the aggregate-demand curve is the interest-rate effect.

Accepted Answer

A) True 
 B)False

Question 13

An increase in the interest rate could have been caused by

Accepted Answer

A)   a fall in the price level causing the money-demand curve to shift leftward.
B)   a fall in the price level causing the money-demand curve to shift rightward.
C)   a rise in the price level causing the money-demand curve to shift leftward.
D)   a rise in the price level causing the money-demand curve to shift rightward.E) B) and C)
F) A) and B)

Question 14

To offset increased pessimism by households, the government may _____ government spending and/or _____ taxes.

Accepted Answer

The answer of To offset increased pessimism by households, the...

Question 15

If taxes

Accepted Answer

A)   increase, then consumption increases, and aggregate demand shifts leftward.
B)   increase, then consumption decreases, and aggregate demand shifts rightward.
C)   decrease, then consumption increases, and aggregate demand shifts rightward.
D)   decrease, then consumption decreases, and aggregate demand shifts leftward.E) C) and D)
F) A) and B)

Question 16

The lag problem associated with fiscal policy is due mostly to

Accepted Answer

A)   the fact that business firms make investment plans far in advance.
B)   the political system of checks and balances that slows down the process of implementing fiscal policy.
C)   the time it takes for changes in government spending or taxes to affect the interest rate.
D)   All of the above are correct.E) All of the above
F) None of the above

Question 17

Sometimes during wars, government expenditures are larger than normal. To reduce the effects this spending creates on interest rates,

Accepted Answer

A)   the Federal Reserve could increase the money supply by buying bonds.
B)   the Federal Reserve could increase the money supply by selling bonds.
C)   the Federal Reserve could decrease the money supply by buying bonds.
D)   the Federal Reserve could decrease the money supply by selling bonds.E) A) and C)
F) B) and C)

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

Question 19

An increase in the money supply will

Accepted Answer

A)   increase interest rates, decreasing investment and aggregate demand.
B)   reduce interest rates, increasing investment and aggregate demand.
C)   reduce interest rates, decreasing investment and increasing aggregate demand.
D)   increase interest rates, increasing investment and aggregate demand.E) All of the above
F) None of the above

Question 20

Open-market purchases cause a(n) in interest rates and a(n) in real GDP in the short run.

Accepted Answer

The answer of Open-market purchases cause a(n) in interest rates...

Exam 34: The Influence of Monetary and Fiscal Policy on Aggregate Demand

Open-market purchases cause a(n) in interest rates and a(n) in real GDP in the short run.

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If taxes

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A 2009 article in The Economist noted that

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Other things the same, which of the following responses would we expect from an increase in U.S. interest rates?

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The lag problem associated with fiscal policy is due mostly to

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Which of the following events would shift money demand to the left?

Correct AnswerverifiedShow Answer

Sometimes during wars, government expenditures are larger than normal. To reduce the effects this spending creates on interest rates,

Correct AnswerverifiedShow Answer

To offset increased pessimism by households, the government may _____ government spending and/or _____ taxes.

Correct AnswerverifiedShow Answer

The Kennedy tax cut of 1964 was

Correct AnswerverifiedShow Answer

The interest rate that the Federal Reserve pays banks on the reserves they hold is called the

Correct AnswerverifiedShow Answer

An increase in the money supply will

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To decrease the interest rate the Federal Reserve could

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The crowding-out effect occurs because an increase in government spending _____ interest rates, causing _____ to fall.

Correct Answerverifiedincreases,...View AnswerShow Answer

The change in aggregate demand that results from fiscal expansion changing the interest rate is called 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

For the U.S. economy, the most important reason for the downward slope of the aggregate-demand curve is the interest-rate effect.

Correct AnswerverifiedShow Answer

If expected inflation is constant and the nominal interest rate decreases by 2 percentage points, then the real interest rate

Correct AnswerverifiedShow Answer

The opportunity cost of holding money

Correct AnswerverifiedShow Answer

An increase in the interest rate could have been caused by

Correct AnswerverifiedShow Answer

In the long run, fiscal policy influences

Correct AnswerverifiedShow Answer

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To offset increased pessimism by households, the government may _ government spending and/or _ taxes.

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The crowding-out effect occurs because an increase in government spending _ interest rates, causing _ to fall.

Correct Answer
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increases,...
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