Question 1

If the stock market crashes,then

Accepted Answer

A)  aggregate demand increases,which the Fed could offset by increasing the money supply. 
B)  aggregate demand increases,which the Fed could offset by decreasing the money supply. 
C)  aggregate demand decreases,which the Fed could offset by increasing the money supply. 
D)  aggregate demand decreases,which the Fed could offset by decreasing the money supply. 
A)  aggregate demand increases,which the Fed could offset by increasing the money supply. 
B)  aggregate demand increases,which the Fed could offset by decreasing the money supply. 
C)  aggregate demand decreases,which the Fed could offset by increasing the money supply. 
D)  aggregate demand decreases,which the Fed could offset by decreasing the money supply. C

Question 2

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. 
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. A

Question 3

Figure 21-2.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 21-2.Which of the following quantities is held constant as we move from one point to another on either graph?

Accepted Answer

A)  the nominal interest rate 
B)  the quantity of money demanded 
C)  investment 
D)  the expected rate of inflation 
A)  the nominal interest rate 
B)  the quantity of money demanded 
C)  investment 
D)  the expected rate of inflation D

Question 4

According to the theory of liquidity preference,the money supply

Accepted Answer

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

Question 5

According to liquidity preference theory,an increase in money demand for some reason other than a change in the price level causes

Accepted Answer

A)  the interest rate to fall,so aggregate demand shifts right. 
B)  the interest rate to fall,so aggregate demand shifts left. 
C)  the interest rate to rise,so aggregate demand shifts right. 
D)  the interest rate to rise,so aggregate demand shifts left. 
A)  the interest rate to fall,so aggregate demand shifts right. 
B)  the interest rate to fall,so aggregate demand shifts left. 
C)  the interest rate to rise,so aggregate demand shifts right. 
D)  the interest rate to rise,so aggregate demand shifts left.

Question 6

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

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. 
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.

Question 7

Changes in monetary policy aimed at reducing aggregate demand involve decreasing the money supply or increasing the interest rate.

Accepted Answer

A) True 
 B)False

Question 8

An increase in taxes shifts the aggregate _____ curve to the _____.

Accepted Answer

The answer of An increase in taxes shifts the aggregate...

Question 9

The Kennedy tax cut of 1964 included an investment tax credit that was designed to

Accepted Answer

A)  increase aggregate demand in the short run and aggregate supply in the long run. 
B)  increase aggregate supply in the short run and aggregate demand in the long run. 
C)  only increase aggregate supply in the long run. 
D)  only increase aggregate demand in the short run. 
A)  increase aggregate demand in the short run and aggregate supply in the long run. 
B)  increase aggregate supply in the short run and aggregate demand in the long run. 
C)  only increase aggregate supply in the long run. 
D)  only increase aggregate demand in the short run.

Question 10

In the long run,the level of output

Accepted Answer

A)  depends on the money supply. 
B)  depends on the price level. 
C)  is determined by supply-side factors. 
D)  All of the above are correct. 
A)  depends on the money supply. 
B)  depends on the price level. 
C)  is determined by supply-side factors. 
D)  All of the above are correct.

Question 11

Suppose that there are no crowding-out effects and the MPC is .9.By how much must the government increase expenditures to shift the aggregate demand curve right by $10 billion?

Accepted Answer

An MPC of .9 means the multiplier = 1/(1

Question 12

If expected inflation is constant and the nominal interest rate increases by 3.5 percentage points,then the real interest rate

Accepted Answer

A)  increases by 3.5 percentage points. 
B)  increases,but by less than 3.5 percentage points. 
C)  decreases,but by less than 3.5 percentage points. 
D)  decreases by 3.5 percentage points. 
A)  increases by 3.5 percentage points. 
B)  increases,but by less than 3.5 percentage points. 
C)  decreases,but by less than 3.5 percentage points. 
D)  decreases by 3.5 percentage points.

Question 13

With respect to their impact on aggregate demand for the U.S.economy,which of the following represents the correct ordering of the wealth effect,interest-rate effect,and exchange-rate effect from most important to least important?

Accepted Answer

A)  wealth effect,exchange-rate effect,interest-rate effect 
B)  exchange-rate effect,interest-rate effect,wealth effect 
C)  interest-rate effect,wealth effect,exchange-rate effect 
D)  interest-rate effect,exchange-rate effect,wealth effect 
A)  wealth effect,exchange-rate effect,interest-rate effect 
B)  exchange-rate effect,interest-rate effect,wealth effect 
C)  interest-rate effect,wealth effect,exchange-rate effect 
D)  interest-rate effect,exchange-rate effect,wealth effect

Question 14

Which of the following statements is correct?

Accepted Answer

A)  Both liquidity preference theory and classical theory assume the interest rate adjusts to bring the money market into equilibrium. 
B)  Both liquidity preference theory and classical theory assume the price level adjusts to bring the money market into equilibrium. 
C)  Liquidity preference theory assumes the interest rate adjusts to bring the money market into equilibrium;classical theory assumes the price level adjusts to bring the money market into equilibrium. 
D)  Liquidity preference theory assumes the price level adjusts to bring the money market into equilibrium;classical theory assumes the interest rate adjusts to bring the money market into equilibrium. 
A)  Both liquidity preference theory and classical theory assume the interest rate adjusts to bring the money market into equilibrium. 
B)  Both liquidity preference theory and classical theory assume the price level adjusts to bring the money market into equilibrium. 
C)  Liquidity preference theory assumes the interest rate adjusts to bring the money market into equilibrium;classical theory assumes the price level adjusts to bring the money market into equilibrium. 
D)  Liquidity preference theory assumes the price level adjusts to bring the money market into equilibrium;classical theory assumes the interest rate adjusts to bring the money market into equilibrium.

Question 15

For the U.S.economy,which of the following helps explain the slope of the aggregate-demand curve?

Accepted Answer

A)  An increase in the price level decreases the interest rate. 
B)  An increase in the price level increases the interest rate. 
C)  An increase in the money supply decreases the interest rate. 
D)  An increase in the money supply increases the interest rate. 
A)  An increase in the price level decreases the interest rate. 
B)  An increase in the price level increases the interest rate. 
C)  An increase in the money supply decreases the interest rate. 
D)  An increase in the money supply increases the interest rate.

Question 16

If the Federal Reserve decided to lower interest rates,it could

Accepted Answer

A)  buy bonds to lower the money supply. 
B)  buy bonds to raise the money supply. 
C)  sell bonds to lower the money supply. 
D)  sell bonds to raise the money supply. 
A)  buy bonds to lower the money supply. 
B)  buy bonds to raise the money supply. 
C)  sell bonds to lower the money supply. 
D)  sell bonds to raise the money supply.

Question 17

A decrease in government spending initially and primarily shifts

Accepted Answer

A)  aggregate demand to the right. 
B)  aggregate demand to the left. 
C)  aggregate supply to the right. 
D)  neither aggregate demand nor aggregate supply. 
A)  aggregate demand to the right. 
B)  aggregate demand to the left. 
C)  aggregate supply to the right. 
D)  neither aggregate demand nor aggregate supply.

Question 18

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. 
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.

Question 19

Suppose the MPC is 0.9.There are no crowding out or investment accelerator effects.If the government increases its expenditures by $30 billion,then by how much does aggregate demand shift to the right? If the government decreases taxes by $30 billion,then by how far does aggregate demand shift to the right?

Accepted Answer

A)  $283 billion and $254.7 billion 
B)  $283 billion and $283 billion 
C)  $300 billion and $270 billion 
D)  $300 billion and $300 billion 
A)  $283 billion and $254.7 billion 
B)  $283 billion and $283 billion 
C)  $300 billion and $270 billion 
D)  $300 billion and $300 billion

Question 20

People hold money primarily because it

Accepted Answer

A)  has a guaranteed nominal return. 
B)  serves as a store of value. 
C)  can directly be used to buy goods and services. 
D)  functions as a unit of account. 
A)  has a guaranteed nominal return. 
B)  serves as a store of value. 
C)  can directly be used to buy goods and services. 
D)  functions as a unit of account.

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

If the stock market crashes,then

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

According to the theory of liquidity preference,the money supply

According to liquidity preference theory,an increase in money demand for some reason other than a change in the price level causes

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

Changes in monetary policy aimed at reducing aggregate demand involve decreasing the money supply or increasing the interest rate.

An increase in taxes shifts the aggregate _____ curve to the _____.

The Kennedy tax cut of 1964 included an investment tax credit that was designed to

In the long run,the level of output

Suppose that there are no crowding-out effects and the MPC is .9.By how much must the government increase expenditures to shift the aggregate demand curve right by $10 billion?

If expected inflation is constant and the nominal interest rate increases by 3.5 percentage points,then the real interest rate

With respect to their impact on aggregate demand for the U.S.economy,which of the following represents the correct ordering of the wealth effect,interest-rate effect,and exchange-rate effect from most important to least important?

Which of the following statements is correct?

For the U.S.economy,which of the following helps explain the slope of the aggregate-demand curve?

If the Federal Reserve decided to lower interest rates,it could

A decrease in government spending initially and primarily shifts

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

People hold money primarily because it

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply,demand,and Government Policies

Consumers,producers,and the Efficiency of Markets

Application: The Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Market for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Saving,investment,and the Financial System

The Basic Tools of Finance

Unemployment

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomic Models

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Short-Run Trade-Off Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

Filters

An increase in taxes shifts the aggregate _ curve to the _.