Question 1

During a recession unemployment benefits rise.This rise in benefits makes aggregate demand higher than otherwise.

Accepted Answer

A) True 
 B)False

Question 2

Suppose households attempt to increase their money holdings.To stabilize output by countering this increase in money demand,the Federal Reserve would

Accepted Answer

A)  increase government spending. 
B)  increase the money supply. 
C)  decrease government spending. 
D)  decrease the money supply. 
A)  increase government spending. 
B)  increase the money supply. 
C)  decrease government spending. 
D)  decrease the money supply.

Question 3

Which of the following shifts aggregate demand to the right?

Accepted Answer

A)  The price level rises. 
B)  The price level falls. 
C)  The Fed purchases government bonds on the open market. 
D)  None of the above is correct. 
A)  The price level rises. 
B)  The price level falls. 
C)  The Fed purchases government bonds on the open market. 
D)  None of the above is correct.

Question 4

According to liquidity preference theory,an increase in the price level causes the interest rate to

Accepted Answer

A)  increase,which increases the quantity of goods and services demanded. 
B)  increase,which decreases the quantity of goods and services demanded. 
C)  decrease,which increases the quantity of goods and services demanded. 
D)  decrease,which decreases the quantity of goods and services demanded. 
A)  increase,which increases the quantity of goods and services demanded. 
B)  increase,which decreases the quantity of goods and services demanded. 
C)  decrease,which increases the quantity of goods and services demanded. 
D)  decrease,which decreases the quantity of goods and services demanded.

Question 5

For the most part,fiscal policy affects the economy in the short run while monetary policy primarily matters in the long run.

Accepted Answer

A) True 
 B)False

Question 6

Liquidity refers to

Accepted Answer

A)  the relation between the price and interest rate of an asset. 
B)  the risk of an asset relative to its selling price. 
C)  the ease with which an asset is converted into a medium of exchange. 
D)  the sensitivity of investment spending to changes in the interest rate. 
A)  the relation between the price and interest rate of an asset. 
B)  the risk of an asset relative to its selling price. 
C)  the ease with which an asset is converted into a medium of exchange. 
D)  the sensitivity of investment spending to changes in the interest rate.

Question 7

If expected inflation is constant,then when the nominal interest rate increases,the real interest rate

Accepted Answer

A)  increases by more than the change in the nominal interest rate. 
B)  increases by the change in the nominal interest rate. 
C)  decreases by the change in the nominal interest rate. 
D)  decreases by more than the change in the nominal interest rate. 
A)  increases by more than the change in the nominal interest rate. 
B)  increases by the change in the nominal interest rate. 
C)  decreases by the change in the nominal interest rate. 
D)  decreases by more than the change in the nominal interest rate.

Question 8

Other things equal,the higher the price level,the higher is the real wealth of households.

Accepted Answer

A) True 
 B)False

Question 9

An implication of the Employment Act of 1946 is that the government should respond to changes in the private economy to stabilize aggregate demand.

Accepted Answer

A) True 
 B)False

Question 10

Suppose an increase in interest rates causes rising unemployment and falling output.To counter this,the Federal Reserve would

Accepted Answer

A)  increase government spending. 
B)  increase the money supply. 
C)  decrease government spending. 
D)  decrease the money supply. 
A)  increase government spending. 
B)  increase the money supply. 
C)  decrease government spending. 
D)  decrease the money supply.

Question 11

Which of the following are effects of an increase in government spending financed by a tax increase?

Accepted Answer

A)  the tax increase reduces consumption;the change in the interest rate reduces residential construction 
B)  the tax increase reduces consumption;the change in the interest rate raises residential construction . 
C)  the tax increase raises consumption;the change in the interest rate reduces residential construction 
D)  the tax increase raises consumption;the change in the interest rate reduces residential construction. 
A)  the tax increase reduces consumption;the change in the interest rate reduces residential construction 
B)  the tax increase reduces consumption;the change in the interest rate raises residential construction . 
C)  the tax increase raises consumption;the change in the interest rate reduces residential construction 
D)  the tax increase raises consumption;the change in the interest rate reduces residential construction.

Question 12

During recessions,automatic stabilizers tend to make the government's budget

Accepted Answer

A)  move toward deficit. 
B)  move toward surplus. 
C)  move toward balance. 
D)  not necessarily move the budget in any particular direction. 
A)  move toward deficit. 
B)  move toward surplus. 
C)  move toward balance. 
D)  not necessarily move the budget in any particular direction.

Question 13

The price of imported oil rises.If the government wanted to stabilize output,which of the following could it do?

Accepted Answer

A)  increase government expenditures or increase the money supply 
B)  increase government expenditures or decrease the money supply 
C)  decrease government expenditures or increase the money supply 
D)  decrease government expenditures or decrease the money supply 
A)  increase government expenditures or increase the money supply 
B)  increase government expenditures or decrease the money supply 
C)  decrease government expenditures or increase the money supply 
D)  decrease government expenditures or decrease the money supply

Question 14

When there is an excess demand for money,households will _____ interest-bearing bonds,causing interest rates to _____.

Accepted Answer

The answer of When there is an excess demand for...

Question 15

Suppose a wave of optimism causes firms to increase investment.To stabilize output and employment,the Federal Reserve will _____.

Accepted Answer

decrease t

Question 16

A European recession that reduces U.S.net exports by $50 billion may ultimately lead to a $_____ billion reduction in aggregate demand if the MPC is 0.75.

Accepted Answer

The answer of A European recession that reduces U.S.net exports...

Question 17

A tax cut shifts aggregate demand

Accepted Answer

A)  by more than the amount of the tax cut. 
B)  by the same amount as the tax cut. 
C)  by less than the tax cut. 
D)  None of the above is necessarily correct. 
A)  by more than the amount of the tax cut. 
B)  by the same amount as the tax cut. 
C)  by less than the tax cut. 
D)  None of the above is necessarily correct.

Question 18

Which of the following would not be an expected response from a decrease in the price level and so help to explain the slope of the aggregate-demand curve?

Accepted Answer

A)  When interest rates fall,In-and-Out Convenience Stores decides to build some new stores. 
B)  The exchange rate falls,so French restaurants in Paris buy more Kansas beef. 
C)  Tyler feels wealthier because of the price-level decrease and so he decides to remodel his kitchen. 
D)  With prices down and wages fixed by contract,Fargo Concrete Company decides to lay off workers. 
A)  When interest rates fall,In-and-Out Convenience Stores decides to build some new stores. 
B)  The exchange rate falls,so French restaurants in Paris buy more Kansas beef. 
C)  Tyler feels wealthier because of the price-level decrease and so he decides to remodel his kitchen. 
D)  With prices down and wages fixed by contract,Fargo Concrete Company decides to lay off workers.

Question 19

Imagine that the government increases its spending by $75 billion.Which of the following by itself would tend to make the change in aggregate demand different from $75 billion?

Accepted Answer

A)  both the multiplier effect and the crowding-out effect 
B)  the multiplier effect,but not the crowding-out effect 
C)  the crowding-out effect,but not the multiplier effect 
D)  neither the crowding out effect nor the multiplier effect 
A)  both the multiplier effect and the crowding-out effect 
B)  the multiplier effect,but not the crowding-out effect 
C)  the crowding-out effect,but not the multiplier effect 
D)  neither the crowding out effect nor the multiplier effect

Question 20

Figure 21-1  
-Refer to Figure 21-1.Which of the following is correct?

Accepted Answer

A)  If the interest rate is 4 percent,there is excess money demand,and the interest rate will fall. 
B)  If the interest rate is 3 percent,there is excess money supply,and the interest rate will rise. 
C)  Starting with an interest rate of 4 percent,the demand for goods and services will increase until the money market reaches a new equilibrium. 
D)  None of the above is correct. 
A)  If the interest rate is 4 percent,there is excess money demand,and the interest rate will fall. 
B)  If the interest rate is 3 percent,there is excess money supply,and the interest rate will rise. 
C)  Starting with an interest rate of 4 percent,the demand for goods and services will increase until the money market reaches a new equilibrium. 
D)  None of the above is correct.

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

During a recession unemployment benefits rise.This rise in benefits makes aggregate demand higher than otherwise.

Suppose households attempt to increase their money holdings.To stabilize output by countering this increase in money demand,the Federal Reserve would

Which of the following shifts aggregate demand to the right?

According to liquidity preference theory,an increase in the price level causes the interest rate to

For the most part,fiscal policy affects the economy in the short run while monetary policy primarily matters in the long run.

Liquidity refers to

If expected inflation is constant,then when the nominal interest rate increases,the real interest rate

Other things equal,the higher the price level,the higher is the real wealth of households.

An implication of the Employment Act of 1946 is that the government should respond to changes in the private economy to stabilize aggregate demand.

Suppose an increase in interest rates causes rising unemployment and falling output.To counter this,the Federal Reserve would

Which of the following are effects of an increase in government spending financed by a tax increase?

During recessions,automatic stabilizers tend to make the government's budget

The price of imported oil rises.If the government wanted to stabilize output,which of the following could it do?

When there is an excess demand for money,households will _____ interest-bearing bonds,causing interest rates to _____.

Suppose a wave of optimism causes firms to increase investment.To stabilize output and employment,the Federal Reserve will _____.

A European recession that reduces U.S.net exports by $50 billion may ultimately lead to a $_____ billion reduction in aggregate demand if the MPC is 0.75.

A tax cut shifts aggregate demand

Which of the following would not be an expected response from a decrease in the price level and so help to explain the slope of the aggregate-demand curve?

Imagine that the government increases its spending by $75 billion.Which of the following by itself would tend to make the change in aggregate demand different from $75 billion?

Figure 21-1 -Refer to Figure 21-1.Which of the following is correct?

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

When there is an excess demand for money,households will _ interest-bearing bonds,causing interest rates to _.