Question 1

When the Fed buys government bonds,the reserves of the banking system

Accepted Answer

A)  increase,so the money supply increases. 
B)  increase,so the money supply decreases. 
C)  decrease,so the money supply increases. 
D)  decrease,so the money supply decreases. 
A)  increase,so the money supply increases. 
B)  increase,so the money supply decreases. 
C)  decrease,so the money supply increases. 
D)  decrease,so the money supply decreases.

Question 2

If the MPC is 2/3 then the multiplier is

Accepted Answer

A)  3/2,so a $100 increase in government spending increases aggregate demand by $150. 
B)  3/2,so a $100 increase in government spending increases aggregate supply by $150. 
C)  3,so a $100 increase in government spending increases aggregate demand by $300. 
D)  3,so a $100 increase in government spending increases aggregate supply by $300. 
A)  3/2,so a $100 increase in government spending increases aggregate demand by $150. 
B)  3/2,so a $100 increase in government spending increases aggregate supply by $150. 
C)  3,so a $100 increase in government spending increases aggregate demand by $300. 
D)  3,so a $100 increase in government spending increases aggregate supply by $300.

Question 3

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 an 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. 
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 an 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.

Question 4

Figure 21-4.On the figure,MS represents money supply and MD represents money demand.  
-Refer to Figure 21-4.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 downward 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 surplus of money. 
A)  in response,the money-demand curve will shift downward 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 surplus of money.

Question 5

The most important reason for the slope of the aggregate-demand curve is that as the price level

Accepted Answer

A)  increases,interest rates increase,and investment decreases. 
B)  increases,interest rates decrease,and investment increases. 
C)  decreases,interest rates increase,and investment increases. 
D)  decreases,interest rates decrease,and investment decreases. 
A)  increases,interest rates increase,and investment decreases. 
B)  increases,interest rates decrease,and investment increases. 
C)  decreases,interest rates increase,and investment increases. 
D)  decreases,interest rates decrease,and investment decreases.

Question 6

The short-run effects on the interest rate are

Accepted Answer

A)  shown equally well using either liquidity preference theory or classical theory. 
B)  best shown using classical theory. 
C)  best shown using liquidity preference theory. 
D)  not shown well by either liquidity preference theory or classical theory. 
A)  shown equally well using either liquidity preference theory or classical theory. 
B)  best shown using classical theory. 
C)  best shown using liquidity preference theory. 
D)  not shown well by either liquidity preference theory or classical theory.

Question 7

According to liquidity preference theory,if there were a shortage of money,then

Accepted Answer

A)  the interest rate would be above equilibrium and the quantity of money demanded would be too large for equilibrium. 
B)  the interest rate would be above equilibrium and the quantity of money demanded would be too small for equilibrium. 
C)  the interest rate would be below equilibrium and the quantity of money demanded would be too small for equilibrium. 
D)  the interest rate would be below equilibrium and the quantity of money demanded would be too large for equilibrium. 
A)  the interest rate would be above equilibrium and the quantity of money demanded would be too large for equilibrium. 
B)  the interest rate would be above equilibrium and the quantity of money demanded would be too small for equilibrium. 
C)  the interest rate would be below equilibrium and the quantity of money demanded would be too small for equilibrium. 
D)  the interest rate would be below equilibrium and the quantity of money demanded would be too large for equilibrium.

Question 8

The government buys new weapons systems.The manufacturers of weapons pay their employees.The employees spend this money on goods and services.The firms from which the employees buy the goods and services pay their employees.This sequence of events illustrates

Accepted Answer

A)  the accelerator effect. 
B)  the multiplier effect. 
C)  the chain effect. 
D)  the bandwagon effect. 
A)  the accelerator effect. 
B)  the multiplier effect. 
C)  the chain effect. 
D)  the bandwagon effect.

Question 9

An increase in government spending shifts aggregate demand

Accepted Answer

A)  to the right.The larger the multiplier is,the farther it shifts. 
B)  to the right.The larger the multiplier is,the less it shifts. 
C)  to the left.The larger the multiplier is,the farther it shifts. 
D)  to the left.The larger the multiplier is,the less it shifts. 
A)  to the right.The larger the multiplier is,the farther it shifts. 
B)  to the right.The larger the multiplier is,the less it shifts. 
C)  to the left.The larger the multiplier is,the farther it shifts. 
D)  to the left.The larger the multiplier is,the less it shifts.

Question 10

If the multiplier is 6 and if there is no crowding-out effect,then a $60 billion increase in government expenditures causes aggregate demand to

Accepted Answer

A)  increase by $250 billion. 
B)  increase by $333 billion. 
C)  increase by $360 billion. 
D)  None of the above are correct. 
A)  increase by $250 billion. 
B)  increase by $333 billion. 
C)  increase by $360 billion. 
D)  None of the above are correct.

Question 11

Suppose the Federal Reserve lowers the target on the interest rate in the Federal Funds market.The Federal Reserve will _____ the money supply and aggregate demand will _____.

Accepted Answer

The answer of Suppose the Federal Reserve lowers the target...

Question 12

Suppose that businesses and consumers become much more optimistic about the future of the economy.To stabilize output,the Federal Reserve could

Accepted Answer

A)  buy bonds to raise interest rates. 
B)  buy bonds to lower interest rates. 
C)  sell bonds to raise interest rates. 
D)  sell bonds to lower interest rates. 
A)  buy bonds to raise interest rates. 
B)  buy bonds to lower interest rates. 
C)  sell bonds to raise interest rates. 
D)  sell bonds to lower interest rates.

Question 13

In the long run,fiscal policy primarily affects

Accepted Answer

A)  aggregate demand.In the short run,it affects primarily aggregate supply. 
B)  aggregate supply.In the short run,it affects primarily saving,investment,and growth. 
C)  saving,investment,and growth.In the short run,it affects primarily aggregate demand. 
D)  saving,investment,and growth.In the short run,it affects primarily aggregate supply. 
A)  aggregate demand.In the short run,it affects primarily aggregate supply. 
B)  aggregate supply.In the short run,it affects primarily saving,investment,and growth. 
C)  saving,investment,and growth.In the short run,it affects primarily aggregate demand. 
D)  saving,investment,and growth.In the short run,it affects primarily aggregate supply.

Question 14

Liquidity preference refers directly to Keynes' theory concerning

Accepted Answer

A)  the effects of changes in money demand and supply on interest rates. 
B)  the effects of changes in money demand and supply on exchange rates. 
C)  the effects of wealth on expenditures. 
D)  the difference between temporary and permanent changes in income. 
A)  the effects of changes in money demand and supply on interest rates. 
B)  the effects of changes in money demand and supply on exchange rates. 
C)  the effects of wealth on expenditures. 
D)  the difference between temporary and permanent changes in income.

Question 15

The multiplier for changes in government spending is calculated as

Accepted Answer

A)  MPC. 
B)  1 - MPC. 
C)  1/MPC. 
D)  1/(1 - MP
C) . 
A)  MPC. 
B)  1 - MPC. 
C)  1/MPC. 
D)  1/(1 - MP
C) .

Question 16

During recessions,taxes tend to

Accepted Answer

A)  rise and thereby increase aggregate demand. 
B)  rise and thereby decrease aggregate demand. 
C)  fall and thereby increase aggregate demand. 
D)  fall and thereby decrease aggregate demand. 
A)  rise and thereby increase aggregate demand. 
B)  rise and thereby decrease aggregate demand. 
C)  fall and thereby increase aggregate demand. 
D)  fall and thereby decrease aggregate demand.

Question 17

A situation in which the Fed's target interest rate has fallen as far as it can fall is sometimes described as a

Accepted Answer

A)  liquidity preference. 
B)  liquidity trap. 
C)  open-market trap. 
D)  interest-rate contraction. 
A)  liquidity preference. 
B)  liquidity trap. 
C)  open-market trap. 
D)  interest-rate contraction.

Question 18

Fiscal policy affects the economy

Accepted Answer

A)  only in the short run. 
B)  only in the long run. 
C)  in both the short and long run. 
D)  in neither the short nor the long run. 
A)  only in the short run. 
B)  only in the long run. 
C)  in both the short and long run. 
D)  in neither the short nor the long run.

Question 19

Which of the following is correct?

Accepted Answer

A)  A higher price level shifts money demand rightward. 
B)  When money demand shifts rightward,the interest rate rises. 
C)  A higher interest rate reduces the quantity of goods and services demanded. 
D)  All of the above are correct. 
A)  A higher price level shifts money demand rightward. 
B)  When money demand shifts rightward,the interest rate rises. 
C)  A higher interest rate reduces the quantity of goods and services demanded. 
D)  All of the above are correct.

Question 20

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

Accepted Answer

A)  if the money demand curve shifted right. 
B)  if the Federal Reserve chose to increase the money supply. 
C)  if the interest rate increased. 
D)  All of the above are correct. 
A)  if the money demand curve shifted right. 
B)  if the Federal Reserve chose to increase the money supply. 
C)  if the interest rate increased. 
D)  All of the above are correct.

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

When the Fed buys government bonds,the reserves of the banking system

If the MPC is 2/3 then the multiplier is

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

Figure 21-4.On the figure,MS represents money supply and MD represents money demand. -Refer to Figure 21-4.Suppose the money-demand curve is currently MD2.If the current interest rate is r2,then

The most important reason for the slope of the aggregate-demand curve is that as the price level

The short-run effects on the interest rate are

According to liquidity preference theory,if there were a shortage of money,then

The government buys new weapons systems.The manufacturers of weapons pay their employees.The employees spend this money on goods and services.The firms from which the employees buy the goods and services pay their employees.This sequence of events illustrates

An increase in government spending shifts aggregate demand

If the multiplier is 6 and if there is no crowding-out effect,then a $60 billion increase in government expenditures causes aggregate demand to

Suppose the Federal Reserve lowers the target on the interest rate in the Federal Funds market.The Federal Reserve will _____ the money supply and aggregate demand will _____.

Suppose that businesses and consumers become much more optimistic about the future of the economy.To stabilize output,the Federal Reserve could

In the long run,fiscal policy primarily affects

Liquidity preference refers directly to Keynes' theory concerning

The multiplier for changes in government spending is calculated as

During recessions,taxes tend to

A situation in which the Fed's target interest rate has fallen as far as it can fall is sometimes described as a

Fiscal policy affects the economy

Which of the following is correct?

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

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

Figure 21-4.On the figure,MS represents money supply and MD represents money demand. -Refer to Figure 21-4.Suppose the money-demand curve is currently MD₂.If the current interest rate is r₂,then

Suppose the Federal Reserve lowers the target on the interest rate in the Federal Funds market.The Federal Reserve will _ the money supply and aggregate demand will _.