Question 1

If Congress cuts spending to balance the federal budget,the Fed can act to prevent unemployment and recession by

Accepted Answer

A)  buying bonds to increase the money supply 
B)  buying bonds to decrease the money supply. 
C)  selling bonds to increase the money supply. 
D)  selling bonds to decrease the money supply. 
A)  buying bonds to increase the money supply 
B)  buying bonds to decrease the money supply. 
C)  selling bonds to increase the money supply. 
D)  selling bonds to decrease the money supply.

Question 2

Government purchases are said to have a

Accepted Answer

A)  multiplier effect on aggregate supply. 
B)  multiplier effect on aggregate demand. 
C)  liquidity-enhancing effect on aggregate supply. 
D)  liquidity-enhancing effect on aggregate demand. 
A)  multiplier effect on aggregate supply. 
B)  multiplier effect on aggregate demand. 
C)  liquidity-enhancing effect on aggregate supply. 
D)  liquidity-enhancing effect on aggregate demand.

Question 3

The theory of liquidity preference assumes that the nominal supply of money is determined by the

Accepted Answer

A)  level of real output only. 
B)  interest rate only. 
C)  level of real output and by the interest rate. 
D)  Federal Reserve. 
A)  level of real output only. 
B)  interest rate only. 
C)  level of real output and by the interest rate. 
D)  Federal Reserve.

Question 4

Other things the same,an increase in the price level causes the real value of the dollar to fall in the market for foreign-currency exchange.

Accepted Answer

A) True 
 B)False

Question 5

The _____ is the most important automatic stabilizer.

Accepted Answer

The answer of The _____ is the most important automatic...

Question 6

The Fed is concerned about stock market booms because the booms

Accepted Answer

A)  increase consumption spending. 
B)  increase investment spending. 
C)  increase both consumption and investment spending. 
D)  None of the above is correct. 
A)  increase consumption spending. 
B)  increase investment spending. 
C)  increase both consumption and investment spending. 
D)  None of the above is correct.

Question 7

An increase in the money supply decreases the interest rate in the short run.

Accepted Answer

A) True 
 B)False

Question 8

Other things equal,in the short run a higher price level leads households to

Accepted Answer

A)  increase consumption and firms to buy more capital goods. 
B)  increase consumption and firms to buy fewer capital goods. 
C)  decrease consumption and firms to buy more capital goods. 
D)  decrease consumption and firms to buy fewer capital goods. 
A)  increase consumption and firms to buy more capital goods. 
B)  increase consumption and firms to buy fewer capital goods. 
C)  decrease consumption and firms to buy more capital goods. 
D)  decrease consumption and firms to buy fewer capital goods.

Question 9

Critics of stabilization policy argue that

Accepted Answer

A)  there is a lag between the time policy is passed and the time policy has an impact on the economy. 
B)  the impact of policy may last longer than the problem it was designed to offset. 
C)  policy can be a source of,instead of a cure for,economic fluctuations. 
D)  All of the above are correct. 
A)  there is a lag between the time policy is passed and the time policy has an impact on the economy. 
B)  the impact of policy may last longer than the problem it was designed to offset. 
C)  policy can be a source of,instead of a cure for,economic fluctuations. 
D)  All of the above are correct.

Question 10

When there is an excess supply of money,

Accepted Answer

A)  people will try to get rid of money causing interest rates to rise.Investment increases. 
B)  people will try to get rid of money causing interest rates to fall.Investment decreases. 
C)  people will try to get rid of money causing interest rates to fall.Investment increases. 
D)  people will try to get rid of money causing interest rates to rise.Investment decreases. 
A)  people will try to get rid of money causing interest rates to rise.Investment increases. 
B)  people will try to get rid of money causing interest rates to fall.Investment decreases. 
C)  people will try to get rid of money causing interest rates to fall.Investment increases. 
D)  people will try to get rid of money causing interest rates to rise.Investment decreases.

Question 11

Which of the following events shifts aggregate demand rightward?

Accepted Answer

A)  an increase in government expenditures or a decrease in the price level 
B)  a decrease in government expenditures or an increase in the price level 
C)  an increase in government expenditures,but not a change in the price level 
D)  a decrease in the price level,but not an increase in government expenditures 
A)  an increase in government expenditures or a decrease in the price level 
B)  a decrease in government expenditures or an increase in the price level 
C)  an increase in government expenditures,but not a change in the price level 
D)  a decrease in the price level,but not an increase in government expenditures

Question 12

What is the difference between monetary policy and fiscal policy?

Accepted Answer

The Federal Reserve Bank conducts U.S.mo

Question 13

Which of the following statements is correct for the long run?

Accepted Answer

A)  Output is determined by the amount of capital,labor,and technology;the interest rate adjusts to balance the supply and demand for money;the price level adjusts to balance the supply and demand for loanable funds. 
B)  Output is determined by the amount of capital,labor,and technology;the interest rate adjusts to balance the supply and demand for loanable funds;the price level adjusts to balance the supply and demand for money. 
C)  Output is determined by the amount of capital,labor,and technology;the interest rate adjusts to balance the supply and demand for loanable funds;the price level is relatively slow to adjust. 
D)  Output responds to the aggregate demand for goods and services;the interest rate adjusts to balance the supply and demand for loanable funds;the price level adjusts to balance the supply and demand for money. 
A)  Output is determined by the amount of capital,labor,and technology;the interest rate adjusts to balance the supply and demand for money;the price level adjusts to balance the supply and demand for loanable funds. 
B)  Output is determined by the amount of capital,labor,and technology;the interest rate adjusts to balance the supply and demand for loanable funds;the price level adjusts to balance the supply and demand for money. 
C)  Output is determined by the amount of capital,labor,and technology;the interest rate adjusts to balance the supply and demand for loanable funds;the price level is relatively slow to adjust. 
D)  Output responds to the aggregate demand for goods and services;the interest rate adjusts to balance the supply and demand for loanable funds;the price level adjusts to balance the supply and demand for money.

Question 14

A significant example of a temporary tax cut was the one announced in 1992 by President George H.W.Bush.The effect of that tax cut on consumer spending and aggregate demand was

Accepted Answer

A)  zero. 
B)  likely smaller than if the cut had been permanent. 
C)  likely about the same as if the cut had been permanent. 
D)  likely larger than if the cut had been permanent. 
A)  zero. 
B)  likely smaller than if the cut had been permanent. 
C)  likely about the same as if the cut had been permanent. 
D)  likely larger than if the cut had been permanent.

Question 15

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

Accepted Answer

A)  interest rate and investment to rise. 
B)  interest rate and investment to fall. 
C)  interest rate to rise and investment to fall. 
D)  interest rate to fall and investment to rise. 
A)  interest rate and investment to rise. 
B)  interest rate and investment to fall. 
C)  interest rate to rise and investment to fall. 
D)  interest rate to fall and investment to rise.

Question 16

Figure 21-6.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 21-6.Suppose the multiplier is 5 and the government increases its purchases by $10 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 $20 billion.The extent of crowding out,for any particular level of the price level,is

Accepted Answer

A)  the horizontal distance between the curves MD1 and MD2. 
B)  $40 billion. 
C)  $30 billion. 
D)  $20 billion. 
A)  the horizontal distance between the curves MD1 and MD2. 
B)  $40 billion. 
C)  $30 billion. 
D)  $20 billion.

Question 17

For a country such as the U.S. ,the wealth effect exerts a very important influence on the slope of the aggregate-demand curve,since U.S.wealth is large relative to wealth in most other countries.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following correctly explains the crowding-out effect?

Accepted Answer

A)  An increase in government expenditures decreases the interest rate and so increases investment spending. 
B)  An increase in government expenditures increases the interest rate and so reduces investment spending. 
C)  A decrease in government expenditures increases the interest rate and so increases investment spending. 
D)  A decrease in government expenditures decreases the interest rate and so reduces investment spending. 
A)  An increase in government expenditures decreases the interest rate and so increases investment spending. 
B)  An increase in government expenditures increases the interest rate and so reduces investment spending. 
C)  A decrease in government expenditures increases the interest rate and so increases investment spending. 
D)  A decrease in government expenditures decreases the interest rate and so reduces investment spending.

Question 19

According to classical macroeconomic theory,

Accepted Answer

A)  output is determined by the supplies of capital and labor and the available production technology. 
B)  for any given level of output,the interest rate adjusts to balance the supply of,and demand for,loanable funds. 
C)  given output and the interest rate,the price level adjusts to balance the supply of,and demand for,money. 
D)  All of the above are correct. 
A)  output is determined by the supplies of capital and labor and the available production technology. 
B)  for any given level of output,the interest rate adjusts to balance the supply of,and demand for,loanable funds. 
C)  given output and the interest rate,the price level adjusts to balance the supply of,and demand for,money. 
D)  All of the above are correct.

Question 20

Which of the effects listed below increases the quantity of goods and services demanded when the price level falls and decreases the quantity of goods and services demanded when the price level rises?

Accepted Answer

A)  the wealth effect 
B)  the interest-rate effect 
C)  the exchange-rate effect 
D)  All of the above are correct. 
A)  the wealth effect 
B)  the interest-rate effect 
C)  the exchange-rate effect 
D)  All of the above are correct.

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

If Congress cuts spending to balance the federal budget,the Fed can act to prevent unemployment and recession by

Government purchases are said to have a

The theory of liquidity preference assumes that the nominal supply of money is determined by the

Other things the same,an increase in the price level causes the real value of the dollar to fall in the market for foreign-currency exchange.

The _____ is the most important automatic stabilizer.

The Fed is concerned about stock market booms because the booms

An increase in the money supply decreases the interest rate in the short run.

Other things equal,in the short run a higher price level leads households to

Critics of stabilization policy argue that

When there is an excess supply of money,

Which of the following events shifts aggregate demand rightward?

What is the difference between monetary policy and fiscal policy?

Which of the following statements is correct for the long run?

A significant example of a temporary tax cut was the one announced in 1992 by President George H.W.Bush.The effect of that tax cut on consumer spending and aggregate demand was

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

For a country such as the U.S. ,the wealth effect exerts a very important influence on the slope of the aggregate-demand curve,since U.S.wealth is large relative to wealth in most other countries.

Which of the following correctly explains the crowding-out effect?

According to classical macroeconomic theory,

Which of the effects listed below increases the quantity of goods and services demanded when the price level falls and decreases the quantity of goods and services demanded when the price level rises?

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

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