Question 1

The lag problem associated with monetary policy is due mostly to

Accepted Answer

A)  the fact that business firms make investment plans far in advance. 
B)  the political system of checks and balances that slows down the process of determining monetary policy. 
C)  the time it takes for changes in government spending to affect the interest rate. 
D)  All of the above are correct. 
A)  the fact that business firms make investment plans far in advance. 
B)  the political system of checks and balances that slows down the process of determining monetary policy. 
C)  the time it takes for changes in government spending to affect the interest rate. 
D)  All of the above are correct.

Question 2

For the U.S.economy,money holdings are a

Accepted Answer

A)  large part of household wealth,and so the interest-rate effect is large. 
B)  large part of household wealth,and so the wealth effect is large. 
C)  small part of household wealth,and so the interest-rate effect is small. 
D)  small part of household wealth,and so the wealth effect is small. 
A)  large part of household wealth,and so the interest-rate effect is large. 
B)  large part of household wealth,and so the wealth effect is large. 
C)  small part of household wealth,and so the interest-rate effect is small. 
D)  small part of household wealth,and so the wealth effect is small.

Question 3

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 decrease in the equilibrium interest rate from r3 to r1?

Accepted Answer

A)  a decrease in the price level 
B)  a decrease in the number of firms building new factories and buying new equipment 
C)  an increase in the price level 
D)  an increase in the number of firms building new factories and buying new equipment 
A)  a decrease in the price level 
B)  a decrease in the number of firms building new factories and buying new equipment 
C)  an increase in the price level 
D)  an increase in the number of firms building new factories and buying new equipment

Question 4

In the short run,a decrease in the money supply causes interest rates to

Accepted Answer

A)  increase,and aggregate demand to shift right. 
B)  increase,and aggregate demand to shift left. 
C)  decrease,and aggregate demand to shift right. 
D)  decrease,and aggregate demand to shift left. 
A)  increase,and aggregate demand to shift right. 
B)  increase,and aggregate demand to shift left. 
C)  decrease,and aggregate demand to shift right. 
D)  decrease,and aggregate demand to shift left.

Question 5

Suppose stock prices rise.To offset the resulting change in output the Federal Reserve could

Accepted Answer

A)  increase the money supply.This increase would also move the price level closer to its value before the rise in stock prices. 
B)  increase the money supply.However,this increase would move the price level farther from its value before the rise in stock prices. 
C)  decrease the money supply.This decrease would also move the price level closer to its value before the rise in stock prices. 
D)  decrease the money supply.However,this decrease would move the price level farther from its value before the rise in stock prices. 
A)  increase the money supply.This increase would also move the price level closer to its value before the rise in stock prices. 
B)  increase the money supply.However,this increase would move the price level farther from its value before the rise in stock prices. 
C)  decrease the money supply.This decrease would also move the price level closer to its value before the rise in stock prices. 
D)  decrease the money supply.However,this decrease would move the price level farther from its value before the rise in stock prices.

Question 6

The main criticism of those who doubt the ability of the government to respond in a useful way to the business cycle is that the theory by which money and government expenditures change output is flawed.

Accepted Answer

A) True 
 B)False

Question 7

Figure 21-7.  
-Refer to Figure 21-7.Which of the following is correct?

Accepted Answer

A)  A wave of optimism could move the economy from point a to point b 
B)  If aggregate demand moves from AD1 to AD2,the economy will stay at point b in both the short run and long run. 
C)  It is possible that either fiscal or monetary policy might have caused the shift from AD1 to AD2. 
D)  All of the above are correct. 
A)  A wave of optimism could move the economy from point a to point b 
B)  If aggregate demand moves from AD1 to AD2,the economy will stay at point b in both the short run and long run. 
C)  It is possible that either fiscal or monetary policy might have caused the shift from AD1 to AD2. 
D)  All of the above are correct.

Question 8

Permanent tax cuts have a larger impact on consumption spending than temporary ones.

Accepted Answer

A) True 
 B)False

Question 9

Figure 21-3.  
-Refer to Figure 21-3.Which of the following sequences (numbered arrows)shows the logic of the interest-rate effect?

Accepted Answer

A)  1,2,3,4 
B)  1,4,3,2 
C)  3,4,2,1 
D)  3,2,1,4 
A)  1,2,3,4 
B)  1,4,3,2 
C)  3,4,2,1 
D)  3,2,1,4

Question 10

The wealth effect helps explain the slope of the aggregate-demand curve.This effect is

Accepted Answer

A)  relatively important in the United States because expenditures on consumer durables is very responsive to changes in wealth. 
B)  relatively important in the United States because consumption spending is a large part of GDP. 
C)  relatively unimportant in the United States because money holdings are a small part of consumer wealth. 
D)  relatively unimportant because it takes a large change in wealth to cause a significant change in interest rates. 
A)  relatively important in the United States because expenditures on consumer durables is very responsive to changes in wealth. 
B)  relatively important in the United States because consumption spending is a large part of GDP. 
C)  relatively unimportant in the United States because money holdings are a small part of consumer wealth. 
D)  relatively unimportant because it takes a large change in wealth to cause a significant change in interest rates.

Question 11

If people decide to hold less money,then

Accepted Answer

A)  money demand decreases,there is an excess supply of money,and interest rates rise. 
B)  money demand decreases,there is an excess supply of money,and interest rates fall. 
C)  money demand increases,there is an excess demand for money,and interest rates fall. 
D)  money demand increases,there is an excess demand for money,and interest rates rise. 
A)  money demand decreases,there is an excess supply of money,and interest rates rise. 
B)  money demand decreases,there is an excess supply of money,and interest rates fall. 
C)  money demand increases,there is an excess demand for money,and interest rates fall. 
D)  money demand increases,there is an excess demand for money,and interest rates rise.

Question 12

Figure 21-4.On the figure,MS represents money supply and MD represents money demand.  
-Refer to Figure 21-4.Suppose the current equilibrium interest rate is r1.Which of the following events would cause the equilibrium interest rate to increase?

Accepted Answer

A)  The Federal Reserve increases the money supply. 
B)  Money demand increases. 
C)  The price level decreases. 
D)  All of the above are correct. 
A)  The Federal Reserve increases the money supply. 
B)  Money demand increases. 
C)  The price level decreases. 
D)  All of the above are correct.

Question 13

The marginal propensity to consume (MPC)is defined as the fraction of

Accepted Answer

A)  extra income that a household consumes rather than saves. 
B)  extra income that a household either consumes or saves. 
C)  total income that a household consumes rather than saves. 
D)  total income that a household either consumes or saves. 
A)  extra income that a household consumes rather than saves. 
B)  extra income that a household either consumes or saves. 
C)  total income that a household consumes rather than saves. 
D)  total income that a household either consumes or saves.

Question 14

During periods of expansion,automatic stabilizers cause government expenditures

Accepted Answer

A)  and taxes to fall. 
B)  and taxes to rise. 
C)  to rise and taxes to fall. 
D)  to fall and taxes to rise. 
A)  and taxes to fall. 
B)  and taxes to rise. 
C)  to rise and taxes to fall. 
D)  to fall and taxes to rise.

Question 15

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 does Y represent on the horizontal axis of the right-hand graph?

Accepted Answer

A)  the quantity of money 
B)  the rate of inflation 
C)  real output 
D)  nominal output 
A)  the quantity of money 
B)  the rate of inflation 
C)  real output 
D)  nominal output

Question 16

The multiplier effect is exemplified by the multiplied impact on

Accepted Answer

A)  the money supply of a given increase in government purchases. 
B)  tax revenues of a given increase in government purchases. 
C)  investment of a given increase in interest rates. 
D)  aggregate demand of a given increase in government purchases. 
A)  the money supply of a given increase in government purchases. 
B)  tax revenues of a given increase in government purchases. 
C)  investment of a given increase in interest rates. 
D)  aggregate demand of a given increase in government purchases.

Question 17

Suppose that the MPC is 0.60;there is no investment accelerator;and there are no crowding-out effects.If government expenditures increase by $25 billion,then aggregate demand

Accepted Answer

A)  shifts rightward by $62.5 billion. 
B)  shifts rightward by $50.0 billion. 
C)  shifts rightward by $32.5 billion. 
D)  None of the above is correct. 
A)  shifts rightward by $62.5 billion. 
B)  shifts rightward by $50.0 billion. 
C)  shifts rightward by $32.5 billion. 
D)  None of the above is correct.

Question 18

For the U.S.economy,the most important reason for the downward slope of the aggregate-demand curve is the interest-rate effect.

Accepted Answer

A) True 
 B)False

Question 19

When the interest rate decreases,the opportunity cost of holding money

Accepted Answer

A)  increases,so the quantity of money demanded increases. 
B)  increases,so the quantity of money demanded decreases. 
C)  decreases,so the quantity of money demanded increases. 
D)  decreases,so the quantity of money demanded decreases. 
A)  increases,so the quantity of money demanded increases. 
B)  increases,so the quantity of money demanded decreases. 
C)  decreases,so the quantity of money demanded increases. 
D)  decreases,so the quantity of money demanded decreases.

Question 20

If the multiplier is 2.5,then the MPC is

Accepted Answer

A)  0.2. 
B)  0.6. 
C)  0.75. 
D)  1.00. 
A)  0.2. 
B)  0.6. 
C)  0.75. 
D)  1.00.

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

The lag problem associated with monetary policy is due mostly to

For the U.S.economy,money holdings are a

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 decrease in the equilibrium interest rate from r3 to r1?

In the short run,a decrease in the money supply causes interest rates to

Suppose stock prices rise.To offset the resulting change in output the Federal Reserve could

The main criticism of those who doubt the ability of the government to respond in a useful way to the business cycle is that the theory by which money and government expenditures change output is flawed.

Figure 21-7. -Refer to Figure 21-7.Which of the following is correct?

Permanent tax cuts have a larger impact on consumption spending than temporary ones.

Figure 21-3. -Refer to Figure 21-3.Which of the following sequences (numbered arrows)shows the logic of the interest-rate effect?

The wealth effect helps explain the slope of the aggregate-demand curve.This effect is

If people decide to hold less money,then

Figure 21-4.On the figure,MS represents money supply and MD represents money demand. -Refer to Figure 21-4.Suppose the current equilibrium interest rate is r1.Which of the following events would cause the equilibrium interest rate to increase?

The marginal propensity to consume (MPC)is defined as the fraction of

During periods of expansion,automatic stabilizers cause government expenditures

The multiplier effect is exemplified by the multiplied impact on

Suppose that the MPC is 0.60;there is no investment accelerator;and there are no crowding-out effects.If government expenditures increase by $25 billion,then aggregate demand

For the U.S.economy,the most important reason for the downward slope of the aggregate-demand curve is the interest-rate effect.

When the interest rate decreases,the opportunity cost of holding money

If the multiplier is 2.5,then the MPC 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

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 decrease in the equilibrium interest rate from r₃ to r₁?

Figure 21-4.On the figure,MS represents money supply and MD represents money demand. -Refer to Figure 21-4.Suppose the current equilibrium interest rate is r₁.Which of the following events would cause the equilibrium interest rate to increase?