Question 1

Which of the following sequences best explains the negative slope of the aggregate-demand curve?

Accepted Answer

A)  price level$\uparrow$$\implies$demand for money $\downarrow$$\implies$equilibrium interest rate $\uparrow$$\implies$quantity of goods and services demanded $\downarrow$ 
B)  price level $\uparrow$$\implies$demand for money $\uparrow$$\implies$equilibrium interest rate $\downarrow$$\implies$quantity of goods and services demanded $\downarrow$ 
C)  price level $\downarrow$$\implies$demand for money $\downarrow$$\implies$equilibrium interest rate $\downarrow$$\implies$quantity of goods and services demanded $\uparrow$ 
D)  price level $\downarrow$$\implies$equilibrium interest rate $\downarrow$$\implies$demand for money $\uparrow$$\implies$quantity of goods and services demanded $\uparrow$ 
A)  price level$\uparrow$$\implies$demand for money $\downarrow$$\implies$equilibrium interest rate $\uparrow$$\implies$quantity of goods and services demanded $\downarrow$ 
B)  price level $\uparrow$$\implies$demand for money $\uparrow$$\implies$equilibrium interest rate $\downarrow$$\implies$quantity of goods and services demanded $\downarrow$ 
C)  price level $\downarrow$$\implies$demand for money $\downarrow$$\implies$equilibrium interest rate $\downarrow$$\implies$quantity of goods and services demanded $\uparrow$ 
D)  price level $\downarrow$$\implies$equilibrium interest rate $\downarrow$$\implies$demand for money $\uparrow$$\implies$quantity of goods and services demanded $\uparrow$

Question 2

According to liquidity preference theory,a decrease in the price level shifts the

Accepted Answer

A)  money demand curve rightward,so the interest rate increases. 
B)  money demand curve rightward,so the interest rate decreases. 
C)  money demand curve leftward,so the interest rate decreases. 
D)  money demand curve leftward,so the interest rate increases. 
A)  money demand curve rightward,so the interest rate increases. 
B)  money demand curve rightward,so the interest rate decreases. 
C)  money demand curve leftward,so the interest rate decreases. 
D)  money demand curve leftward,so the interest rate increases.

Question 3

The interest rate falls if

Accepted Answer

A)  either money demand or money supply shifts right. 
B)  money demand shifts right or money supply shifts left. 
C)  either money demand or money supply shifts left. 
D)  money demand shifts left or money supply shifts right. 
A)  either money demand or money supply shifts right. 
B)  money demand shifts right or money supply shifts left. 
C)  either money demand or money supply shifts left. 
D)  money demand shifts left or money supply shifts right.

Question 4

If the price level falls,then

Accepted Answer

A)  the interest rate falls and spending on goods and services falls. 
B)  the interest rate falls and spending on goods and services rises. 
C)  the interest rate rises and spending on goods and services falls. 
D)  the interest rate rises and spending on goods and services rises. 
A)  the interest rate falls and spending on goods and services falls. 
B)  the interest rate falls and spending on goods and services rises. 
C)  the interest rate rises and spending on goods and services falls. 
D)  the interest rate rises and spending on goods and services rises.

Question 5

An essential piece of the liquidity preference theory is the demand for money.

Accepted Answer

A) True 
 B)False

Question 6

If net exports fall $40 billion and the MPC is 8/11 and there is a multiplier effect,but no crowding out and no investment accelerator,then

Accepted Answer

A)  aggregate demand falls by 3 x $40 billion. 
B)  aggregate demand falls by 11/3 x $40 billion. 
C)  aggregate demand falls by 11/8 x $40 billion. 
D)  None of the above is correct. 
A)  aggregate demand falls by 3 x $40 billion. 
B)  aggregate demand falls by 11/3 x $40 billion. 
C)  aggregate demand falls by 11/8 x $40 billion. 
D)  None of the above is correct.

Question 7

Which of the following sequences best explains the negative slope of the aggregate-demand curve?

Accepted Answer

A)  price level $\rightarrow$$\implies$demand for money $\uparrow$$\implies$equilibrium interest rate $\uparrow$ $\implies$quantity of goods and services demanded $\downarrow$ 
B)  price level $\uparrow$$\implies$demand for money$\downarrow$$\implies$equilibrium interest rate$\uparrow$$\implies$quantity of goods and services demanded $\downarrow$ 
C)  price level $\downarrow$$\implies$demand for money $\downarrow$$\implies$equilibrium interest rate $\uparrow$$\implies$quantity of goods and services demanded $\downarrow$ 
D)  price level $\uparrow$$\implies$equilibrium interest rate $\uparrow$$\implies$demand for money $\uparrow$$\implies$quantity of goods and services demanded $\downarrow$ 
A)  price level $\rightarrow$$\implies$demand for money $\uparrow$$\implies$equilibrium interest rate $\uparrow$ $\implies$quantity of goods and services demanded $\downarrow$ 
B)  price level $\uparrow$$\implies$demand for money$\downarrow$$\implies$equilibrium interest rate$\uparrow$$\implies$quantity of goods and services demanded $\downarrow$ 
C)  price level $\downarrow$$\implies$demand for money $\downarrow$$\implies$equilibrium interest rate $\uparrow$$\implies$quantity of goods and services demanded $\downarrow$ 
D)  price level $\uparrow$$\implies$equilibrium interest rate $\uparrow$$\implies$demand for money $\uparrow$$\implies$quantity of goods and services demanded $\downarrow$

Question 8

Both monetary policy and fiscal policy affect aggregate demand.

Accepted Answer

A) True 
 B)False

Question 9

Figure 21-4.On the figure,MS represents money supply and MD represents money demand.  
-Refer to Figure 21-4.Suppose the current equilibrium interest rate is r3.Which of the following events would cause the equilibrium interest rate to decrease?

Accepted Answer

A)  The Federal Reserve increases the money supply. 
B)  Money demand decreases. 
C)  The price level decreases. 
D)  All of the above are correct. 
A)  The Federal Reserve increases the money supply. 
B)  Money demand decreases. 
C)  The price level decreases. 
D)  All of the above are correct.

Question 10

Which of the following actions might we logically expect to result from rising stock prices?

Accepted Answer

A)  Jim increases his consumption spending. 
B)  Firms sell fewer shares of new stock. 
C)  Firms spend less on investment. 
D)  None of the above is correct. 
A)  Jim increases his consumption spending. 
B)  Firms sell fewer shares of new stock. 
C)  Firms spend less on investment. 
D)  None of the above is correct.

Question 11

Which of the following illustrates how the investment accelerator works?

Accepted Answer

A)  An increase in government expenditures increases the interest rate so that the Burgerville chain of restaurants decides to build fewer new restaurants. 
B)  An increase in government expenditures increases aggregate spending so that Burgerville finds it profitable to build more new restaurants. 
C)  An increase in government expenditures increases the interest rate so that the demand for stocks and bonds issued by Burgerville increases. 
D)  An increase in government expenditures decreases the interest rate so that Burgerville decides to build more new restaurants. 
A)  An increase in government expenditures increases the interest rate so that the Burgerville chain of restaurants decides to build fewer new restaurants. 
B)  An increase in government expenditures increases aggregate spending so that Burgerville finds it profitable to build more new restaurants. 
C)  An increase in government expenditures increases the interest rate so that the demand for stocks and bonds issued by Burgerville increases. 
D)  An increase in government expenditures decreases the interest rate so that Burgerville decides to build more new restaurants.

Question 12

The term crowding-out effect refers to

Accepted Answer

A)  the reduction in aggregate supply that results when a monetary expansion causes the interest rate to decrease. 
B)  the reduction in aggregate demand that results when a monetary expansion causes the interest rate to decrease. 
C)  the reduction in aggregate demand that results when a fiscal expansion causes the interest rate to increase. 
D)  the reduction in aggregate demand that results when a decrease in government spending or an increase in taxes causes the interest rate to increase. 
A)  the reduction in aggregate supply that results when a monetary expansion causes the interest rate to decrease. 
B)  the reduction in aggregate demand that results when a monetary expansion causes the interest rate to decrease. 
C)  the reduction in aggregate demand that results when a fiscal expansion causes the interest rate to increase. 
D)  the reduction in aggregate demand that results when a decrease in government spending or an increase in taxes causes the interest rate to increase.

Question 13

The multiplier effect

Accepted Answer

A)  and the crowding-out effect both amplify the effects of an increase in government expenditures. 
B)  and the crowding-out effect both diminish the effects of an increase in government expenditures. 
C)  diminishes the effects of an increase in government expenditures,while the crowding-out effect amplifies the effects. 
D)  amplifies the effects of an increase in government expenditures,while the crowding-out effect diminishes the effects. 
A)  and the crowding-out effect both amplify the effects of an increase in government expenditures. 
B)  and the crowding-out effect both diminish the effects of an increase in government expenditures. 
C)  diminishes the effects of an increase in government expenditures,while the crowding-out effect amplifies the effects. 
D)  amplifies the effects of an increase in government expenditures,while the crowding-out effect diminishes the effects.

Question 14

According to liquidity preference theory,if the price level decreases,then

Accepted Answer

A)  the interest rate falls because money demand shifts right. 
B)  the interest rate falls because money demand shifts left. 
C)  the interest rate rises because money supply shifts right. 
D)  the interest rate rises because money supply shifts left. 
A)  the interest rate falls because money demand shifts right. 
B)  the interest rate falls because money demand shifts left. 
C)  the interest rate rises because money supply shifts right. 
D)  the interest rate rises because money supply shifts left.

Question 15

An increase in government spending

Accepted Answer

A)  increases the interest rate and so investment spending increases. 
B)  increases the interest rate and so investment spending decreases. 
C)  decreases the interest rate and so increases investment spending increases. 
D)  decreases the interest rate and so investment spending decreases. 
A)  increases the interest rate and so investment spending increases. 
B)  increases the interest rate and so investment spending decreases. 
C)  decreases the interest rate and so increases investment spending increases. 
D)  decreases the interest rate and so investment spending decreases.

Question 16

Most economists believe that a cut in tax rates

Accepted Answer

A)  would generally increase government tax revenue. 
B)  would have no effect on aggregate demand. 
C)  has a relatively small effect on the aggregate-supply curve. 
D)  All of the above are correct. 
A)  would generally increase government tax revenue. 
B)  would have no effect on aggregate demand. 
C)  has a relatively small effect on the aggregate-supply curve. 
D)  All of the above are correct.

Question 17

Which of the following illustrates how the investment accelerator works?

Accepted Answer

A)  An increase in government expenditures increases aggregate spending so that SnoozeBargain Co.decides to modernize its motels. 
B)  An increase in government expenditures increases the interest rate so that SnoozeBargain Co.decides to modernize its motels. 
C)  An increase in government expenditures increases the interest rate so that the demand for stocks and bonds issued by SnoozeBargain Co.rises. 
D)  An increase in government expenditures decreases the interest rate so that SnoozeBargain Co.decides to modernize its motels. 
A)  An increase in government expenditures increases aggregate spending so that SnoozeBargain Co.decides to modernize its motels. 
B)  An increase in government expenditures increases the interest rate so that SnoozeBargain Co.decides to modernize its motels. 
C)  An increase in government expenditures increases the interest rate so that the demand for stocks and bonds issued by SnoozeBargain Co.rises. 
D)  An increase in government expenditures decreases the interest rate so that SnoozeBargain Co.decides to modernize its motels.

Question 18

Economists who are skeptical about the relevance of "liquidity traps" argue that

Accepted Answer

A)  a central bank continues to have tools to stimulate the economy,even after its interest rate target hits its lower bound of zero. 
B)  a central bank continues to have the option of committing itself to future monetary contraction,even after its interest rate target hits its lower bound of zero. 
C)  a central bank can greatly reduce the likelihood of a liquidity trap by setting the target rate of inflation at zero. 
D)  while the concept of a liquidity trap is theoretically possible,nothing resembling a liquidity trap ever has been observed in the real world. 
A)  a central bank continues to have tools to stimulate the economy,even after its interest rate target hits its lower bound of zero. 
B)  a central bank continues to have the option of committing itself to future monetary contraction,even after its interest rate target hits its lower bound of zero. 
C)  a central bank can greatly reduce the likelihood of a liquidity trap by setting the target rate of inflation at zero. 
D)  while the concept of a liquidity trap is theoretically possible,nothing resembling a liquidity trap ever has been observed in the real world.

Question 19

If,at some interest rate,the quantity of money supplied is greater than the quantity of money demanded,people will desire to

Accepted Answer

A)  sell interest-bearing assets,causing the interest rate to decrease. 
B)  sell interest-bearing assets,causing the interest rate to increase. 
C)  buy interest-bearing assets,causing the interest rate to decrease. 
D)  buy interest-bearing assets,causing the interest rate to increase. 
A)  sell interest-bearing assets,causing the interest rate to decrease. 
B)  sell interest-bearing assets,causing the interest rate to increase. 
C)  buy interest-bearing assets,causing the interest rate to decrease. 
D)  buy interest-bearing assets,causing the interest rate to increase.

Question 20

If the Fed conducts open-market purchases,then which of the following quantities increase(s)?

Accepted Answer

A)  interest rates and investment spending 
B)  interest rates,but not investment spending 
C)  investment spending,but not interest rates 
D)  neither interest rates nor investment spending 
A)  interest rates and investment spending 
B)  interest rates,but not investment spending 
C)  investment spending,but not interest rates 
D)  neither interest rates nor investment spending

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

Which of the following sequences best explains the negative slope of the aggregate-demand curve?

According to liquidity preference theory,a decrease in the price level shifts the

The interest rate falls if

If the price level falls,then

An essential piece of the liquidity preference theory is the demand for money.

If net exports fall $40 billion and the MPC is 8/11 and there is a multiplier effect,but no crowding out and no investment accelerator,then

Which of the following sequences best explains the negative slope of the aggregate-demand curve?

Both monetary policy and fiscal policy affect aggregate demand.

Figure 21-4.On the figure,MS represents money supply and MD represents money demand. -Refer to Figure 21-4.Suppose the current equilibrium interest rate is r3.Which of the following events would cause the equilibrium interest rate to decrease?

Which of the following actions might we logically expect to result from rising stock prices?

Which of the following illustrates how the investment accelerator works?

The term crowding-out effect refers to

The multiplier effect

According to liquidity preference theory,if the price level decreases,then

An increase in government spending

Most economists believe that a cut in tax rates

Which of the following illustrates how the investment accelerator works?

Economists who are skeptical about the relevance of "liquidity traps" argue that

If,at some interest rate,the quantity of money supplied is greater than the quantity of money demanded,people will desire to

If the Fed conducts open-market purchases,then which of the following quantities increase(s)?

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 current equilibrium interest rate is r₃.Which of the following events would cause the equilibrium interest rate to decrease?