Question 1

When the interest rate is below the equilibrium level,

Accepted Answer

A)  the quantity of money that the Federal Reserve has supplied exceeds the quantity of money that people want to hold. 
B)  people respond by selling interest-bearing bonds or by withdrawing money from interest-bearing bank accounts. 
C)  bond issuers and banks respond by lowering the interest rates they offer. 
D)  All of the above are correct. 
A)  the quantity of money that the Federal Reserve has supplied exceeds the quantity of money that people want to hold. 
B)  people respond by selling interest-bearing bonds or by withdrawing money from interest-bearing bank accounts. 
C)  bond issuers and banks respond by lowering the interest rates they offer. 
D)  All of the above are correct.

Question 2

Macroeconomic forecasts are

Accepted Answer

A)  precise;this makes policy lags less relevant. 
B)  precise;this makes policy lags more relevant. 
C)  imprecise;this makes policy lags less relevant. 
D)  imprecise;this makes policy lags more relevant. 
A)  precise;this makes policy lags less relevant. 
B)  precise;this makes policy lags more relevant. 
C)  imprecise;this makes policy lags less relevant. 
D)  imprecise;this makes policy lags more relevant.

Question 3

According to the interest-rate effect,an increase in the price level will

Accepted Answer

A)  increase money demand and interest rates.Investment declines. 
B)  increase money demand and interest rates.Investment increases. 
C)  increase money demand,reduce interest rates,and investment increases. 
D)  decrease money demand and interest rates.Investment declines. 
A)  increase money demand and interest rates.Investment declines. 
B)  increase money demand and interest rates.Investment increases. 
C)  increase money demand,reduce interest rates,and investment increases. 
D)  decrease money demand and interest rates.Investment declines.

Question 4

The multiplier for changes in government spending is calculated as

Accepted Answer

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

Question 5

The theory of liquidity preference illustrates the principle that

Accepted Answer

A)  monetary policy can be described either in terms of the money supply or in terms of the interest rate. 
B)  monetary policy can be described either in terms of the exchange rate or the interest rate. 
C)  monetary policy must be described in terms of the money supply. 
D)  monetary policy must be described in terms of the interest rate. 
A)  monetary policy can be described either in terms of the money supply or in terms of the interest rate. 
B)  monetary policy can be described either in terms of the exchange rate or the interest rate. 
C)  monetary policy must be described in terms of the money supply. 
D)  monetary policy must be described in terms of the interest rate.

Question 6

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.What is measured along the horizontal axis of the left-hand graph?

Accepted Answer

A)  nominal output 
B)  real output 
C)  the opportunity cost of holding money 
D)  the quantity of money 
A)  nominal output 
B)  real output 
C)  the opportunity cost of holding money 
D)  the quantity of money

Question 7

Explain the logic according to liquidity preference theory by which an increase in the money supply changes the aggregate demand curve.

Accepted Answer

When the money supply increases,the inte

Question 8

Which of the following Fed actions would both increase the money supply?

Accepted Answer

A)  buy bonds and raise the reserve requirement 
B)  buy bonds and lower the reserve requirement 
C)  sell bonds and raise the reserve requirement 
D)  sell bonds and lower the reserve requirement 
A)  buy bonds and raise the reserve requirement 
B)  buy bonds and lower the reserve requirement 
C)  sell bonds and raise the reserve requirement 
D)  sell bonds and lower the reserve requirement

Question 9

If the interest rate is above the Fed's target,the Fed should

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 10

Which of the following policy actions shifts the aggregate-demand curve?

Accepted Answer

A)  an increase in the money supply 
B)  an increase in taxes 
C)  an increase in government spending 
D)  All of the above are correct. 
A)  an increase in the money supply 
B)  an increase in taxes 
C)  an increase in government spending 
D)  All of the above are correct.

Question 11

While a television news reporter might state that "Today the Fed lowered the federal funds rate from 5.5 percent to 5.25 percent," a more precise account of the Fed's action would be as follows:

Accepted Answer

A)  "Today the Fed told its bond traders to conduct open-market operations in such a way that the equilibrium federal funds rate would decrease to 5.25 percent." 
B)  "Today the Fed lowered the discount rate by a quarter of a percentage point,and this action will force the federal funds rate to drop by the same amount." 
C)  "Today the Fed took steps to decrease the money supply by an amount that is sufficient to decrease the federal funds rate to 5.25 percent." 
D)  "Today the Fed took a step toward contracting aggregate demand,and this was done by lowering the federal funds rate to 5.25 percent." 
A)  "Today the Fed told its bond traders to conduct open-market operations in such a way that the equilibrium federal funds rate would decrease to 5.25 percent." 
B)  "Today the Fed lowered the discount rate by a quarter of a percentage point,and this action will force the federal funds rate to drop by the same amount." 
C)  "Today the Fed took steps to decrease the money supply by an amount that is sufficient to decrease the federal funds rate to 5.25 percent." 
D)  "Today the Fed took a step toward contracting aggregate demand,and this was done by lowering the federal funds rate to 5.25 percent."

Question 12

If the interest rate is below the Fed's target,the Fed would

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 13

In a certain economy,when income is $200,consumer spending is $145.The value of the multiplier for this economy is 6.25.It follows that,when income is $230,consumer spending is

Accepted Answer

A)  $151.25. 
B)  $166.75. 
C)  $170.20. 
D)  $175.00. 
A)  $151.25. 
B)  $166.75. 
C)  $170.20. 
D)  $175.00.

Question 14

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. 
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.

Question 15

Stock prices often rise when the Fed raises interest rates.

Accepted Answer

A) True 
 B)False

Question 16

According to the theory of liquidity preference,the interest rate adjusts to balance the supply of,and demand for,loanable funds.

Accepted Answer

A) True 
 B)False

Question 17

The positive feedback from aggregate demand to investment is called

Accepted Answer

A)  the investment multiplier. 
B)  the stock-market effect. 
C)  the investment accelerator. 
D)  the crowding-in multiplier. 
A)  the investment multiplier. 
B)  the stock-market effect. 
C)  the investment accelerator. 
D)  the crowding-in multiplier.

Question 18

The theory of liquidity preference was developed by Irving Fisher.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following shifts aggregate demand to the right?

Accepted Answer

A)  an increase in the price level 
B)  an increase in the money supply 
C)  a decrease in the price level 
D)  a decrease in the money supply 
A)  an increase in the price level 
B)  an increase in the money supply 
C)  a decrease in the price level 
D)  a decrease in the money supply

Question 20

Consider the following sequence of events: price level$\uparrow$$\implies$demand for money $\uparrow$$\implies$equilibrium interest rate $\uparrow$
$\implies$quantity of goods and services demanded $\downarrow$
This sequence explains why the

Accepted Answer

A)  money-supply curve is vertical. 
B)  aggregate-demand curve shifts leftward in response to a monetary injection. 
C)  aggregate-demand curve shifts rightward in response to a monetary injection. 
D)  aggregate-demand curve slopes downward. 
A)  money-supply curve is vertical. 
B)  aggregate-demand curve shifts leftward in response to a monetary injection. 
C)  aggregate-demand curve shifts rightward in response to a monetary injection. 
D)  aggregate-demand curve slopes downward.

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

When the interest rate is below the equilibrium level,

Macroeconomic forecasts are

According to the interest-rate effect,an increase in the price level will

The multiplier for changes in government spending is calculated as

The theory of liquidity preference illustrates the principle that

Explain the logic according to liquidity preference theory by which an increase in the money supply changes the aggregate demand curve.

Which of the following Fed actions would both increase the money supply?

If the interest rate is above the Fed's target,the Fed should

Which of the following policy actions shifts the aggregate-demand curve?

While a television news reporter might state that "Today the Fed lowered the federal funds rate from 5.5 percent to 5.25 percent," a more precise account of the Fed's action would be as follows:

If the interest rate is below the Fed's target,the Fed would

In a certain economy,when income is $200,consumer spending is $145.The value of the multiplier for this economy is 6.25.It follows that,when income is $230,consumer spending is

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

Stock prices often rise when the Fed raises interest rates.

According to the theory of liquidity preference,the interest rate adjusts to balance the supply of,and demand for,loanable funds.

The positive feedback from aggregate demand to investment is called

The theory of liquidity preference was developed by Irving Fisher.

Which of the following shifts aggregate demand to the right?

Consider the following sequence of events: price level ↑\uparrow↑ ⟹ \implies⟹ demand for money ↑\uparrow↑ ⟹ \implies⟹ equilibrium interest rate ↑\uparrow↑ ⟹ \implies⟹ quantity of goods and services demanded ↓\downarrow↓ This sequence explains why the

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

Consider the following sequence of events: price level $\uparrow$ $\implies$ demand for money $\uparrow$ $\implies$ equilibrium interest rate $\uparrow$ $\implies$ quantity of goods and services demanded $\downarrow$ This sequence explains why the