Question 1

The opportunity cost of holding money

Accepted Answer

A)  decreases when the interest rate increases,so people desire to hold more of it. 
B)  decreases when the interest rate increases,so people desire to hold less of it. 
C)  increases when the interest rate increases,so people desire to hold more of it. 
D)  increases when the interest rate increases,so people desire to hold less of it. 
A)  decreases when the interest rate increases,so people desire to hold more of it. 
B)  decreases when the interest rate increases,so people desire to hold less of it. 
C)  increases when the interest rate increases,so people desire to hold more of it. 
D)  increases when the interest rate increases,so people desire to hold less of it.

Question 2

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.Assume the money market is always in equilibrium.Under the assumptions of the model,

Accepted Answer

A)  the quantity of goods and services demanded is higher at P2 than it is at P1. 
B)  the quantity of money is higher at Y1 than it is at Y2. 
C)  an increase in r from r1 to r2 is associated with a decrease in Y from Y1 to Y2. 
D)  All of the above are correct. 
A)  the quantity of goods and services demanded is higher at P2 than it is at P1. 
B)  the quantity of money is higher at Y1 than it is at Y2. 
C)  an increase in r from r1 to r2 is associated with a decrease in Y from Y1 to Y2. 
D)  All of the above are correct.

Question 3

For the U.S.economy,which of the following is the most important reason for the downward slope of the aggregate-demand curve?

Accepted Answer

A)  the wealth effect 
B)  the interest-rate effect 
C)  the exchange-rate effect 
D)  the real-wage effect 
A)  the wealth effect 
B)  the interest-rate effect 
C)  the exchange-rate effect 
D)  the real-wage effect

Question 4

Critics of stabilization policy argue that

Accepted Answer

A)  "animal spirits" must be offset by active monetary policy. 
B)  active monetary policy is necessary for steady economic growth. 
C)  the lag problem ends up being a cause of economic fluctuations. 
D)  active fiscal policy is required for steady economic growth. 
A)  "animal spirits" must be offset by active monetary policy. 
B)  active monetary policy is necessary for steady economic growth. 
C)  the lag problem ends up being a cause of economic fluctuations. 
D)  active fiscal policy is required for steady economic growth.

Question 5

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.If the graphs apply to an economy such as the U.S.economy,then the slope of the AD curve is primarily attributable to the

Accepted Answer

A)  wealth effect. 
B)  interest-rate effect. 
C)  exchange-rate effect. 
D)  Fisher effect. 
A)  wealth effect. 
B)  interest-rate effect. 
C)  exchange-rate effect. 
D)  Fisher effect.

Question 6

Initially,the economy is in long-run equilibrium.Aggregate demand then shifts leftward by $50 billion.The government wants to increase its spending in order to avoid a recession.If the crowding-out effect is always half as strong as the multiplier effect,and if the MPC equals 0.8,then by how much do government purchases have to increase in order to offset the $50 billion leftward shift?

Accepted Answer

A)  by $5 billion 
B)  by $10 billion 
C)  by $20 billion 
D)  by $50 billion 
A)  by $5 billion 
B)  by $10 billion 
C)  by $20 billion 
D)  by $50 billion

Question 7

Other things the same,which of the following happens if the price level falls?

Accepted Answer

A)  Money demand shifts rightward. 
B)  Initially there is an excess demand for money in the money market. 
C)  The interest rate falls. 
D)  None of the above is correct. 
A)  Money demand shifts rightward. 
B)  Initially there is an excess demand for money in the money market. 
C)  The interest rate falls. 
D)  None of the above is correct.

Question 8

One of President Obama's first policy initiatives was a stimulus bill that included large increases in government spending.

Accepted Answer

A) True 
 B)False

Question 9

In a certain economy,when income is $100,consumer spending is $60.The value of the multiplier for this economy is 3.It follows that,when income is $101,consumer spending is

Accepted Answer

A)  $60.60. 
B)  $60.67. 
C)  $61.33. 
D)  $63.00. 
A)  $60.60. 
B)  $60.67. 
C)  $61.33. 
D)  $63.00.

Question 10

People might deposit more money into interest-bearing accounts,

Accepted Answer

A)  making the interest rate fall,if there is a surplus in the money market. 
B)  making the interest rate rise,if there is a surplus in the money market. 
C)  making the interest rate fall,if there is a shortage in the money market. 
D)  making the interest rate rise,if there is a shortage in the money market. 
A)  making the interest rate fall,if there is a surplus in the money market. 
B)  making the interest rate rise,if there is a surplus in the money market. 
C)  making the interest rate fall,if there is a shortage in the money market. 
D)  making the interest rate rise,if there is a shortage in the money market.

Question 11

According to liquidity preference theory,the money-supply curve is

Accepted Answer

A)  upward sloping. 
B)  downward sloping. 
C)  vertical. 
D)  horizontal. 
A)  upward sloping. 
B)  downward sloping. 
C)  vertical. 
D)  horizontal.

Question 12

Which of the following properly describes the interest-rate effect?

Accepted Answer

A)  A higher price level leads to higher money demand;higher money demand leads to higher interest rates;a higher interest rate increases the quantity of goods and services demanded. 
B)  A higher price level leads to higher money demand;higher money demand leads to lower interest rates;a higher interest rate reduces the quantity of goods and services demanded. 
C)  A lower price level leads to lower money demand;lower money demand leads to lower interest rates;a lower interest rate reduces the quantity of goods and services demanded. 
D)  A lower price level leads to lower money demand;lower money demand leads to lower interest rates;a lower interest rate increases the quantity of goods and services demanded. 
A)  A higher price level leads to higher money demand;higher money demand leads to higher interest rates;a higher interest rate increases the quantity of goods and services demanded. 
B)  A higher price level leads to higher money demand;higher money demand leads to lower interest rates;a higher interest rate reduces the quantity of goods and services demanded. 
C)  A lower price level leads to lower money demand;lower money demand leads to lower interest rates;a lower interest rate reduces the quantity of goods and services demanded. 
D)  A lower price level leads to lower money demand;lower money demand leads to lower interest rates;a lower interest rate increases the quantity of goods and services demanded.

Question 13

Critics of stabilization policy argue that monetary and fiscal policies affect the economy with _____.

Accepted Answer

The answer of Critics of stabilization policy argue that monetary...

Question 14

If businesses and consumers become pessimistic,the Federal Reserve can attempt to reduce the impact on the price level and real GDP by

Accepted Answer

A)  increasing the money supply,which raises interest rates. 
B)  increasing the money supply,which lowers interest rates. 
C)  decreasing the money supply,which raises interest rates. 
D)  decreasing the money supply,which lowers interest rates. 
A)  increasing the money supply,which raises interest rates. 
B)  increasing the money supply,which lowers interest rates. 
C)  decreasing the money supply,which raises interest rates. 
D)  decreasing the money supply,which lowers interest rates.

Question 15

As income rises

Accepted Answer

A)  money demand rises,so the interest rate rises. 
B)  money demand rises,so the interest rate falls 
C)  money demand falls,so the interest rate rises. 
D)  money demand falls,so the interest rate falls. 
A)  money demand rises,so the interest rate rises. 
B)  money demand rises,so the interest rate falls 
C)  money demand falls,so the interest rate rises. 
D)  money demand falls,so the interest rate falls.

Question 16

If there is excess money supply,people will

Accepted Answer

A)  deposit more into interest-bearing accounts,and the interest rate will fall. 
B)  deposit more into interest-bearing accounts,and the interest rate will rise. 
C)  withdraw money from interest-bearing accounts,and the interest rate will fall. 
D)  withdraw money from interest-bearing accounts,and the interest rate will rise. 
A)  deposit more into interest-bearing accounts,and the interest rate will fall. 
B)  deposit more into interest-bearing accounts,and the interest rate will rise. 
C)  withdraw money from interest-bearing accounts,and the interest rate will fall. 
D)  withdraw money from interest-bearing accounts,and the interest rate will rise.

Question 17

Initially,the economy is in long-run equilibrium.The aggregate demand curve then shifts $80 billion to the left.The government wants to change spending to offset this decrease in demand.The MPC is 0.75.Suppose the effect on aggregate demand of a tax change is 3/4 as strong as the effect of a change in government expenditure.There is no crowding out and no accelerator effect.What should the government do if it wants to offset the decrease in real GDP?

Accepted Answer

A)  Raise both taxes and expenditures by $80 billion dollars. 
B)  Raise both taxes and expenditures by $10 billion dollars. 
C)  Reduce both taxes and expenditures by $80 billion dollars. 
D)  Reduce both taxes and expenditures by $10 billion dollars. 
A)  Raise both taxes and expenditures by $80 billion dollars. 
B)  Raise both taxes and expenditures by $10 billion dollars. 
C)  Reduce both taxes and expenditures by $80 billion dollars. 
D)  Reduce both taxes and expenditures by $10 billion dollars.

Question 18

If the Federal Reserve increases the money supply,then initially there is a

Accepted Answer

A)  shortage in the money market,so people will want to sell bonds. 
B)  shortage in the money market,so people will want to buy bonds. 
C)  surplus in the money market,so people will want to sell bonds. 
D)  surplus in the money market,so people will want to buy bonds. 
A)  shortage in the money market,so people will want to sell bonds. 
B)  shortage in the money market,so people will want to buy bonds. 
C)  surplus in the money market,so people will want to sell bonds. 
D)  surplus in the money market,so people will want to buy bonds.

Question 19

A severe problem that many economists have with the active use of monetary policy and fiscal policy to stabilize the economy is that,while those policies obviously work well in practice,they are not well understood on a theoretical level.

Accepted Answer

A) True 
 B)False

Question 20

If the MPC is 0.75 and there are no crowding-out or accelerator effects,then an initial increase in aggregate demand of $100 billion will eventually shift the aggregate demand curve to the right by

Accepted Answer

A)  $80 billion. 
B)  $125 billion. 
C)  $400 billion. 
D)  $500 billion. 
A)  $80 billion. 
B)  $125 billion. 
C)  $400 billion. 
D)  $500 billion.

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

The opportunity cost of holding money

For the U.S.economy,which of the following is the most important reason for the downward slope of the aggregate-demand curve?

Critics of stabilization policy argue that

Other things the same,which of the following happens if the price level falls?

One of President Obama's first policy initiatives was a stimulus bill that included large increases in government spending.

In a certain economy,when income is $100,consumer spending is $60.The value of the multiplier for this economy is 3.It follows that,when income is $101,consumer spending is

People might deposit more money into interest-bearing accounts,

According to liquidity preference theory,the money-supply curve is

Which of the following properly describes the interest-rate effect?

Critics of stabilization policy argue that monetary and fiscal policies affect the economy with _____.

If businesses and consumers become pessimistic,the Federal Reserve can attempt to reduce the impact on the price level and real GDP by

As income rises

If there is excess money supply,people will

If the Federal Reserve increases the money supply,then initially there is a

A severe problem that many economists have with the active use of monetary policy and fiscal policy to stabilize the economy is that,while those policies obviously work well in practice,they are not well understood on a theoretical level.

If the MPC is 0.75 and there are no crowding-out or accelerator effects,then an initial increase in aggregate demand of $100 billion will eventually shift the aggregate demand curve to the right by

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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