Question 1

Which of the following events would shift money demand to the right?

Accepted Answer

A)  an increase in the price level 
B)  a decrease in the price level 
C)  an increase in the interest rate 
D)  a decrease in the interest rate 
A)  an increase in the price level 
B)  a decrease in the price level 
C)  an increase in the interest rate 
D)  a decrease in the interest rate

Question 2

Assume the money market is initially in equilibrium.If the price level increases,then according to liquidity preference theory there is an excess

Accepted Answer

A)  supply of money until the interest rate increases. 
B)  supply of money until the interest rate decreases. 
C)  demand for money until the interest rate increases. 
D)  demand for money until the interest rate decreases. 
A)  supply of money until the interest rate increases. 
B)  supply of money until the interest rate decreases. 
C)  demand for money until the interest rate increases. 
D)  demand for money until the interest rate decreases.

Question 3

Using the liquidity-preference model,when the Federal Reserve increases the money supply,

Accepted Answer

A)  the equilibrium interest rate decreases. 
B)  the aggregate-demand curve shifts to the left. 
C)  the quantity of goods and services demanded is unchanged for a given price level. 
D)  the long-run aggregate-supply curve shifts to the right. 
A)  the equilibrium interest rate decreases. 
B)  the aggregate-demand curve shifts to the left. 
C)  the quantity of goods and services demanded is unchanged for a given price level. 
D)  the long-run aggregate-supply curve shifts to the right.

Question 4

When the Fed decreases the money supply,we expect

Accepted Answer

A)  interest rates and stock prices to rise. 
B)  interest rates and stock prices to fall. 
C)  interest rates to rise and stock prices to fall. 
D)  interest rates to fall and stock prices to rise. 
A)  interest rates and stock prices to rise. 
B)  interest rates and stock prices to fall. 
C)  interest rates to rise and stock prices to fall. 
D)  interest rates to fall and stock prices to rise.

Question 5

A reduction in personal income taxes increases Aggregate Demand through

Accepted Answer

A)  an increase in investment spending. 
B)  an increase in national savings. 
C)  an increase in private savings. 
D)  an increase in personal consumption. 
A)  an increase in investment spending. 
B)  an increase in national savings. 
C)  an increase in private savings. 
D)  an increase in personal consumption.

Question 6

Suppose an economy's marginal propensity to consume (MPC)is 0.6.Then

Accepted Answer

A)  1 + MPC + MPC 2 + MPC 3 = 1.844 and,if we continued adding up terms in this geometric series,we would get closer and closer to the multiplier value of 1.96. 
B)  1 + MPC + MPC 2 + MPC 3 = 1.844 and,if we continued adding up terms in this geometric series,we would get closer and closer to the multiplier value of 3 . 
C)  1 + MPC + MPC 2 + MPC 3 = 2.176 and,if we continued adding up terms in this geometric series,we would get closer and closer to the multiplier value of 3. 
D)  1 + MPC + MPC 2 + MPC 3 = 2.176 and,if we continued adding up terms in this geometric series,we would get closer and closer to the multiplier value of 2.5. 
A)  1 + MPC + MPC 2 + MPC 3 = 1.844 and,if we continued adding up terms in this geometric series,we would get closer and closer to the multiplier value of 1.96. 
B)  1 + MPC + MPC 2 + MPC 3 = 1.844 and,if we continued adding up terms in this geometric series,we would get closer and closer to the multiplier value of 3 . 
C)  1 + MPC + MPC 2 + MPC 3 = 2.176 and,if we continued adding up terms in this geometric series,we would get closer and closer to the multiplier value of 3. 
D)  1 + MPC + MPC 2 + MPC 3 = 2.176 and,if we continued adding up terms in this geometric series,we would get closer and closer to the multiplier value of 2.5.

Question 7

A reduction in U.S net exports would shift U.S.aggregate demand

Accepted Answer

A)  rightward.In an attempt to stabilize the economy,the government could raise taxes. 
B)  rightward.In an attempt to stabilize the economy,the government could cut taxes. 
C)  leftward.In an attempt to stabilize the economy,the government could raise taxes. 
D)  leftward.In an attempt to stabilize the economy,the government could cut taxes. 
A)  rightward.In an attempt to stabilize the economy,the government could raise taxes. 
B)  rightward.In an attempt to stabilize the economy,the government could cut taxes. 
C)  leftward.In an attempt to stabilize the economy,the government could raise taxes. 
D)  leftward.In an attempt to stabilize the economy,the government could cut taxes.

Question 8

When the Fed increases the money supply,the interest rate decreases.This decrease in the interest rate increases consumption and investment demand,so the aggregate-demand curve shifts to the right.

Accepted Answer

A) True 
 B)False

Question 9

Keynes used the term "animal spirits" to refer to

Accepted Answer

A)  policy makers harming the economy in the pursuit of self interest. 
B)  arbitrary changes in attitudes of household and firms. 
C)  mean-spirited economists who believed in the classical dichotomy. 
D)  firms' relentless efforts to maximize profits. 
A)  policy makers harming the economy in the pursuit of self interest. 
B)  arbitrary changes in attitudes of household and firms. 
C)  mean-spirited economists who believed in the classical dichotomy. 
D)  firms' relentless efforts to maximize profits.

Question 10

Changes in the interest rate help explain

Accepted Answer

A)  only the slope of,not shifts of aggregate demand. 
B)  only shifts of,not the slope of aggregate demand. 
C)  both the slope of and shifts of aggregate demand. 
D)  neither the slope nor shifts of aggregate demand. 
A)  only the slope of,not shifts of aggregate demand. 
B)  only shifts of,not the slope of aggregate demand. 
C)  both the slope of and shifts of aggregate demand. 
D)  neither the slope nor shifts of aggregate demand.

Question 11

An increase in the price level shifts the money demand curve to the left,causing interest rates to increase.

Accepted Answer

A) True 
 B)False

Question 12

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.As we move from one point to another along the money-demand curve MD1,

Accepted Answer

A)  the price level is held fixed at P1. 
B)  the interest rate is held fixed at r1. 
C)  the money supply is changing so as to keep the money market in equilibrium. 
D)  the expected inflation rate is changing so as to keep the real interest rate constant. 
A)  the price level is held fixed at P1. 
B)  the interest rate is held fixed at r1. 
C)  the money supply is changing so as to keep the money market in equilibrium. 
D)  the expected inflation rate is changing so as to keep the real interest rate constant.

Question 13

It is likely that a constitutional amendment that required the government always to run a balanced budget would

Accepted Answer

A)  contribute to a more stable level of output. 
B)  mitigate the crowding-out effect. 
C)  eliminate the economy's automatic stabilizers. 
D)  All of the above are correct. 
A)  contribute to a more stable level of output. 
B)  mitigate the crowding-out effect. 
C)  eliminate the economy's automatic stabilizers. 
D)  All of the above are correct.

Question 14

Suppose the multiplier has a value that exceeds 1,and there are no crowding out or investment accelerator effects.Which of the following would shift aggregate demand to the right by more than the increase in expenditures?

Accepted Answer

A)  an increase in government expenditures 
B)  an increase in net exports 
C)  an increase in investment spending 
D)  All of the above are correct. 
A)  an increase in government expenditures 
B)  an increase in net exports 
C)  an increase in investment spending 
D)  All of the above are correct.

Question 15

Explain how unemployment insurance acts as an automatic stabilizer.

Accepted Answer

As income falls,unemployment rises.More

Question 16

If the interest rate increases

Accepted Answer

A)  or if the price level increases,then people will want to hold more money. 
B)  or if the price level increases,then people will want to hold less money. 
C)  or if the price level decreases,then people will want to hold more money. 
D)  or if the price level decreases,then people will want to hold less money. 
A)  or if the price level increases,then people will want to hold more money. 
B)  or if the price level increases,then people will want to hold less money. 
C)  or if the price level decreases,then people will want to hold more money. 
D)  or if the price level decreases,then people will want to hold less money.

Question 17

Which of the following shifts aggregate demand to the left?

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 18

Scenario 21-1.Take the following information as given for a small,imaginary economy:
  
-Refer to Scenario 21-1.The marginal propensity to consume for this economy is

Accepted Answer

A)  0.650. 
B)  0.664. 
C)  0.650 or 0.664,depending on whether income is $10,000 or $11,000. 
D)  0.800. 
A)  0.650. 
B)  0.664. 
C)  0.650 or 0.664,depending on whether income is $10,000 or $11,000. 
D)  0.800.

Question 19

An increase in households' desired money holding causes a(n)_____ in interest rates.This causes a(n)_____ in investment spending and aggregate demand.

Accepted Answer

The answer of An increase in households' desired money holding...

Question 20

An example of an automatic stabilizer is

Accepted Answer

A)  unemployment benefits. 
B)  a lowering of interest rates by the Fed. 
C)  a decrease in money demand. 
D)  a decrease in tax rates in response to a recession. 
A)  unemployment benefits. 
B)  a lowering of interest rates by the Fed. 
C)  a decrease in money demand. 
D)  a decrease in tax rates in response to a recession.

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

Which of the following events would shift money demand to the right?

Assume the money market is initially in equilibrium.If the price level increases,then according to liquidity preference theory there is an excess

Using the liquidity-preference model,when the Federal Reserve increases the money supply,

When the Fed decreases the money supply,we expect

A reduction in personal income taxes increases Aggregate Demand through

Suppose an economy's marginal propensity to consume (MPC)is 0.6.Then

A reduction in U.S net exports would shift U.S.aggregate demand

When the Fed increases the money supply,the interest rate decreases.This decrease in the interest rate increases consumption and investment demand,so the aggregate-demand curve shifts to the right.

Keynes used the term "animal spirits" to refer to

Changes in the interest rate help explain

An increase in the price level shifts the money demand curve to the left,causing interest rates to increase.

It is likely that a constitutional amendment that required the government always to run a balanced budget would

Suppose the multiplier has a value that exceeds 1,and there are no crowding out or investment accelerator effects.Which of the following would shift aggregate demand to the right by more than the increase in expenditures?

Explain how unemployment insurance acts as an automatic stabilizer.

If the interest rate increases

Which of the following shifts aggregate demand to the left?

Scenario 21-1.Take the following information as given for a small,imaginary economy: -Refer to Scenario 21-1.The marginal propensity to consume for this economy is

An increase in households' desired money holding causes a(n)_____ in interest rates.This causes a(n)_____ in investment spending and aggregate demand.

An example of an automatic stabilizer is

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

An increase in households' desired money holding causes a(n)_ in interest rates.This causes a(n)_ in investment spending and aggregate demand.