Question 1

The Fed can influence the money supply by

Accepted Answer

A)  changing how much it lends to banks. 
B)  changing the interest rate it pays banks on the reserves they are holding. 
C)  using open-market operations. 
D)  All of the above are correct. 
A)  changing how much it lends to banks. 
B)  changing the interest rate it pays banks on the reserves they are holding. 
C)  using open-market operations. 
D)  All of the above are correct.

Question 2

Which of the following shifts aggregate demand to the right?

Accepted Answer

A)  The price level rises. 
B)  The price level falls. 
C)  The money supply falls. 
D)  None of the above is correct. 
A)  The price level rises. 
B)  The price level falls. 
C)  The money supply falls. 
D)  None of the above is correct.

Question 3

A decrease in the interest rate could have been caused by the money-demand curve shifting

Accepted Answer

A)  leftward because the price level fell. 
B)  leftward because the price level rose 
C)  rightward because the price level fell. 
D)  rightward because the price level rose. 
A)  leftward because the price level fell. 
B)  leftward because the price level rose 
C)  rightward because the price level fell. 
D)  rightward because the price level rose.

Question 4

When the money supply increases,there is an excess _____ of money.As a result,interest rates _____ and aggregate demand _____.

Accepted Answer

supply,fal

Question 5

Government expenditures on capital goods such as roads could increase aggregate supply.Such effects on aggregate supply are likely to matter more in the short run than in the long run.

Accepted Answer

A) True 
 B)False

Question 6

According to liquidity preference theory,investment spending would rise if the price level

Accepted Answer

A)  fell,making the interest rate rise. 
B)  fell,making the interest rate fall. 
C)  rose,making the interest rate rise. 
D)  rose,making the interest rate fall. 
A)  fell,making the interest rate rise. 
B)  fell,making the interest rate fall. 
C)  rose,making the interest rate rise. 
D)  rose,making the interest rate fall.

Question 7

If money demand shifted to the right and the Federal Reserve desired to return the interest rate to its original value,it could

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 8

The government's choices regarding the overall level of government purchases and taxes is known as _____.

Accepted Answer

The answer of The government's choices regarding the overall level...

Question 9

If the inflation rate is zero,then

Accepted Answer

A)  both the nominal interest rate and the real interest rate can fall below zero. 
B)  the nominal interest rate can fall below zero,but the real interest rate cannot fall below zero. 
C)  the real interest rate can fall below zero,but the nominal interest rate cannot fall below zero. 
D)  neither the nominal interest rate nor the real interest rate can fall below zero. 
A)  both the nominal interest rate and the real interest rate can fall below zero. 
B)  the nominal interest rate can fall below zero,but the real interest rate cannot fall below zero. 
C)  the real interest rate can fall below zero,but the nominal interest rate cannot fall below zero. 
D)  neither the nominal interest rate nor the real interest rate can fall below zero.

Question 10

Monetary policy

Accepted Answer

A)  must be described in terms of interest-rate targets. 
B)  must be described in terms of money-supply targets. 
C)  can be described either in terms of the money supply or in terms of the interest rate. 
D)  cannot be accurately described in terms of the interest rate or in terms of the money supply. 
A)  must be described in terms of interest-rate targets. 
B)  must be described in terms of money-supply targets. 
C)  can be described either in terms of the money supply or in terms of the interest rate. 
D)  cannot be accurately described in terms of the interest rate or in terms of the money supply.

Question 11

Some economists,called supply-siders,argue that changes in the money supply exert a strong influence on aggregate supply.

Accepted Answer

A) True 
 B)False

Question 12

Figure 21-3.  
-Refer to Figure 21-3.What quantity is represented by the vertical line on the left-hand graph?

Accepted Answer

A)  the supply of money 
B)  the demand for money 
C)  the rate of inflation 
D)  the quantity of bonds that was most recently sold or purchased by the Federal Reserve 
A)  the supply of money 
B)  the demand for money 
C)  the rate of inflation 
D)  the quantity of bonds that was most recently sold or purchased by the Federal Reserve

Question 13

Suppose that the Federal reserve is concerned about the effects of rising stock prices on the economy.What could it do?

Accepted Answer

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

Question 14

A significant lag for monetary policy is the time it takes to for a change in the money supply to change the economy.A significant lag for fiscal policy is the time it takes to pass legislation authorizing it.

Accepted Answer

A) True 
 B)False

Question 15

When government expenditures increase,the interest rate

Accepted Answer

A)  increases,making the change in aggregate demand larger. 
B)  increases,making the change in aggregate demand smaller 
C)  decreases,making the change in aggregate demand larger. 
D)  decreases,making the change in aggregate demand smaller. 
A)  increases,making the change in aggregate demand larger. 
B)  increases,making the change in aggregate demand smaller 
C)  decreases,making the change in aggregate demand larger. 
D)  decreases,making the change in aggregate demand smaller.

Question 16

Figure 21-4.On the figure,MS represents money supply and MD represents money demand.  
-Refer to Figure 21-4.Which of the following events could explain a shift of the money-demand curve from MD1 to MD2?

Accepted Answer

A)  a decrease in the price level 
B)  a decrease in the cost of borrowing 
C)  an increase in the price level 
D)  an increase in the cost of borrowing 
A)  a decrease in the price level 
B)  a decrease in the cost of borrowing 
C)  an increase in the price level 
D)  an increase in the cost of borrowing

Question 17

The logic of the multiplier effect applies

Accepted Answer

A)  only to changes in government spending. 
B)  to any change in spending on any component of GDP. 
C)  only to changes in the money supply. 
D)  only when the crowding-out effect is sufficiently strong. 
A)  only to changes in government spending. 
B)  to any change in spending on any component of GDP. 
C)  only to changes in the money supply. 
D)  only when the crowding-out effect is sufficiently strong.

Question 18

Figure 21-1  
-Refer to Figure 21-1.There is an excess demand for money at an interest rate of

Accepted Answer

A)  2 percent. 
B)  3 percent. 
C)  4 percent. 
D)  None of the above is correct. 
A)  2 percent. 
B)  3 percent. 
C)  4 percent. 
D)  None of the above is correct.

Question 19

As the interest rate falls,

Accepted Answer

A)  the quantity of money demanded falls,which would reduce a shortage. 
B)  the quantity of money demanded falls,which would reduce a surplus. 
C)  the quantity of money demanded rises,which would reduce a shortage. 
D)  the quantity of money demanded rises,which would reduce a surplus. 
A)  the quantity of money demanded falls,which would reduce a shortage. 
B)  the quantity of money demanded falls,which would reduce a surplus. 
C)  the quantity of money demanded rises,which would reduce a shortage. 
D)  the quantity of money demanded rises,which would reduce a surplus.

Question 20

In the long run,changes in the money supply affect

Accepted Answer

A)  prices. 
B)  output. 
C)  unemployment rates. 
D)  All of the above. 
A)  prices. 
B)  output. 
C)  unemployment rates. 
D)  All of the above.

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

The Fed can influence the money supply by

Which of the following shifts aggregate demand to the right?

A decrease in the interest rate could have been caused by the money-demand curve shifting

When the money supply increases,there is an excess _____ of money.As a result,interest rates _____ and aggregate demand _____.

Government expenditures on capital goods such as roads could increase aggregate supply.Such effects on aggregate supply are likely to matter more in the short run than in the long run.

According to liquidity preference theory,investment spending would rise if the price level

If money demand shifted to the right and the Federal Reserve desired to return the interest rate to its original value,it could

The government's choices regarding the overall level of government purchases and taxes is known as _____.

If the inflation rate is zero,then

Monetary policy

Some economists,called supply-siders,argue that changes in the money supply exert a strong influence on aggregate supply.

Figure 21-3. -Refer to Figure 21-3.What quantity is represented by the vertical line on the left-hand graph?

Suppose that the Federal reserve is concerned about the effects of rising stock prices on the economy.What could it do?

A significant lag for monetary policy is the time it takes to for a change in the money supply to change the economy.A significant lag for fiscal policy is the time it takes to pass legislation authorizing it.

When government expenditures increase,the interest rate

Figure 21-4.On the figure,MS represents money supply and MD represents money demand. -Refer to Figure 21-4.Which of the following events could explain a shift of the money-demand curve from MD1 to MD2?

The logic of the multiplier effect applies

Figure 21-1 -Refer to Figure 21-1.There is an excess demand for money at an interest rate of

As the interest rate falls,

In the long run,changes in the money supply affect

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 the money supply increases,there is an excess ___ of money.As a result,interest rates _ and aggregate demand ___.

Figure 21-4.On the figure,MS represents money supply and MD represents money demand. -Refer to Figure 21-4.Which of the following events could explain a shift of the money-demand curve from MD₁ to MD₂?