Question 1

Most recessions and depressions

Accepted Answer

A) are accurately forecasted. 
B) usually occur with ample advance warning. 
C) cause falling unemployment. 
D) occur with little advance warning. 
A) are accurately forecasted. 
B) usually occur with ample advance warning. 
C) cause falling unemployment. 
D) occur with little advance warning. D

Question 2

To stabilize output, the Federal Reserve will _____ the money supply when aggregate demand falls.

Accepted Answer

increase

Question 3

A decrease in taxes ____ aggregate demand through larger _____ by households.

Accepted Answer

increases, consumption

Question 4

Scenario 34-1. Take the following information as given for a small, imaginary economy:
• When income is $10,000, consumption spending is $6,500.
• When income is $11,000, consumption spending is $7,250.
-Refer to Scenario 34-1. For this economy, an initial increase of $200 in net exports translates into a(n)

Accepted Answer

A) $570 increase in aggregate demand when the crowding-out effect is taken into account. 
B) $800 increase in aggregate demand when the crowding-out effect is taken into account. 
C) $1,400 increase in aggregate demand in the absence of the crowding-out effect. 
D) $800 increase in aggregate demand in the absence of the crowding-out effect. 
A) $570 increase in aggregate demand when the crowding-out effect is taken into account. 
B) $800 increase in aggregate demand when the crowding-out effect is taken into account. 
C) $1,400 increase in aggregate demand in the absence of the crowding-out effect. 
D) $800 increase in aggregate demand in the absence of the crowding-out effect.

Question 5

When there is an excess supply of money,

Accepted Answer

A) people will try to get rid of money causing interest rates to rise. Investment increases. 
B) people will try to get rid of money causing interest rates to fall. Investment decreases. 
C) people will try to get rid of money causing interest rates to fall. Investment increases. 
D) people will try to get rid of money causing interest rates to rise. Investment decreases. 
A) people will try to get rid of money causing interest rates to rise. Investment increases. 
B) people will try to get rid of money causing interest rates to fall. Investment decreases. 
C) people will try to get rid of money causing interest rates to fall. Investment increases. 
D) people will try to get rid of money causing interest rates to rise. Investment decreases.

Question 6

An increase in the U.S. interest rate

Accepted Answer

A) raises the opportunity cost of holding dollars. 
B) induces households to increase consumption. 
C) shifts money demand to the right. 
D) leads to a depreciation of the U.S. dollar. 
A) raises the opportunity cost of holding dollars. 
B) induces households to increase consumption. 
C) shifts money demand to the right. 
D) leads to a depreciation of the U.S. dollar.

Question 7

An essential piece of the liquidity preference theory is the demand for money.

Accepted Answer

A) True 
 B)False

Question 8

According to liquidity preference theory, a decrease in money demand for some reason other than a change in the price level causes

Accepted Answer

A) the interest rate to fall, so aggregate demand shifts right. 
B) the interest rate to fall, so aggregate demand shifts left. 
C) the interest rate to rise, so aggregate demand shifts right. 
D) the interest rate to rise, so aggregate demand shifts left. 
A) the interest rate to fall, so aggregate demand shifts right. 
B) the interest rate to fall, so aggregate demand shifts left. 
C) the interest rate to rise, so aggregate demand shifts right. 
D) the interest rate to rise, so aggregate demand shifts left.

Question 9

Liquidity preference theory is most relevant to the

Accepted Answer

A) short run and supposes that the price level adjusts to bring money supply and money demand into balance. 
B) short run and supposes that the interest rate adjusts to bring money supply and money demand into balance. 
C) long run and supposes that the price level adjusts to bring money supply and money demand into balance. 
D) long run and supposes that the interest rate adjusts to bring money supply and money demand into balance. 
A) short run and supposes that the price level adjusts to bring money supply and money demand into balance. 
B) short run and supposes that the interest rate adjusts to bring money supply and money demand into balance. 
C) long run and supposes that the price level adjusts to bring money supply and money demand into balance. 
D) long run and supposes that the interest rate adjusts to bring money supply and money demand into balance.

Question 10

If the government faced a balanced budget rule, it would be forced to raise taxes or decrease spending during a recession.​

Accepted Answer

A) True 
 B)False

Question 11

If the Federal Reserve increases the money supply, then initially people want to

Accepted Answer

A) sell bonds so the interest rate rises. 
B) sell bonds so the interest rate falls. 
C) buy bonds so the interest rate rises. 
D) buy bonds so the interest rate falls. 
A) sell bonds so the interest rate rises. 
B) sell bonds so the interest rate falls. 
C) buy bonds so the interest rate rises. 
D) buy bonds so the interest rate falls.

Question 12

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 13

How does a reduction in the money supply by the Fed make owning stocks less attractive?

Accepted Answer

The reduction in the money supply raises

Question 14

For the U.S. economy, which of the following helps explain the slope of the aggregate-demand curve?

Accepted Answer

A) An increase in the price level decreases the interest rate. 
B) An increase in the price level increases the interest rate. 
C) An increase in the money supply decreases the interest rate. 
D) An increase in the money supply increases the interest rate. 
A) An increase in the price level decreases the interest rate. 
B) An increase in the price level increases the interest rate. 
C) An increase in the money supply decreases the interest rate. 
D) An increase in the money supply increases the interest rate.

Question 15

Assume there is a multiplier effect, some crowding out, and no accelerator effect. An increase in government expenditures changes aggregate demand more,

Accepted Answer

A) the smaller the MPC and the stronger the influence of income on money demand. 
B) the smaller the MPC and the weaker the influence of income on money demand. 
C) the larger the MPC and the stronger the influence of income on money demand. 
D) the larger the MPC and the weaker the influence of income on money demand. 
A) the smaller the MPC and the stronger the influence of income on money demand. 
B) the smaller the MPC and the weaker the influence of income on money demand. 
C) the larger the MPC and the stronger the influence of income on money demand. 
D) the larger the MPC and the weaker the influence of income on money demand.

Question 16

The term crowding-out effect refers to

Accepted Answer

A) the reduction in aggregate supply that results when a monetary expansion causes the interest rate to decrease. 
B) the reduction in aggregate demand that results when a monetary expansion causes the interest rate to decrease. 
C) the reduction in aggregate demand that results when a fiscal expansion causes the interest rate to increase. 
D) the reduction in aggregate demand that results when a decrease in government spending or an increase in taxes causes the interest rate to increase. 
A) the reduction in aggregate supply that results when a monetary expansion causes the interest rate to decrease. 
B) the reduction in aggregate demand that results when a monetary expansion causes the interest rate to decrease. 
C) the reduction in aggregate demand that results when a fiscal expansion causes the interest rate to increase. 
D) the reduction in aggregate demand that results when a decrease in government spending or an increase in taxes causes the interest rate to increase.

Question 17

To reduce aggregate demand, the government may reduce _____ or increase _____.

Accepted Answer

government

Question 18

Figure 34-6. 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 34-6. Suppose the graphs are drawn to show the effects of an increase in government purchases. If it were not for the increase in r from r1 to r2, then

Accepted Answer

A) there would be no crowding out. 
B) the full multiplier effect of the increase in government purchases would be realized. 
C) the AD curves that actually apply, before and after the change in government purchases, would be separated horizontally by the distance equal to the multiplier times the change in government purchases. 
D) All of the above are correct. 
A) there would be no crowding out. 
B) the full multiplier effect of the increase in government purchases would be realized. 
C) the AD curves that actually apply, before and after the change in government purchases, would be separated horizontally by the distance equal to the multiplier times the change in government purchases. 
D) All of the above are correct.

Question 19

An increase in government spending on goods to build or repair infrastructure

Accepted Answer

A) shifts the aggregate demand curve to the right. 
B) has a multiplier effect. 
C) shifts the aggregate supply curve to the right, but this effect is likely more important in the long run. 
D) All of the above are correct. 
A) shifts the aggregate demand curve to the right. 
B) has a multiplier effect. 
C) shifts the aggregate supply curve to the right, but this effect is likely more important in the long run. 
D) All of the above are correct.

Question 20

Other things the same, during recessions taxes tend to

Accepted Answer

A) rise. The rise in taxes stimulates aggregate demand. 
B) rise. The rise in taxes contracts aggregate demand. 
C) fall. The fall in taxes stimulates aggregate demand. 
D) fall. The fall in taxes contracts aggregate demand. 
A) rise. The rise in taxes stimulates aggregate demand. 
B) rise. The rise in taxes contracts aggregate demand. 
C) fall. The fall in taxes stimulates aggregate demand. 
D) fall. The fall in taxes contracts aggregate demand.

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

Most recessions and depressions

To stabilize output, the Federal Reserve will _____ the money supply when aggregate demand falls.

A decrease in taxes ____ aggregate demand through larger _____ by households.

When there is an excess supply of money,

An increase in the U.S. interest rate

An essential piece of the liquidity preference theory is the demand for money.

According to liquidity preference theory, a decrease in money demand for some reason other than a change in the price level causes

Liquidity preference theory is most relevant to the

If the government faced a balanced budget rule, it would be forced to raise taxes or decrease spending during a recession.​

If the Federal Reserve increases the money supply, then initially people want to

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?

How does a reduction in the money supply by the Fed make owning stocks less attractive?

For the U.S. economy, which of the following helps explain the slope of the aggregate-demand curve?

Assume there is a multiplier effect, some crowding out, and no accelerator effect. An increase in government expenditures changes aggregate demand more,

The term crowding-out effect refers to

To reduce aggregate demand, the government may reduce _____ or increase _____.

An increase in government spending on goods to build or repair infrastructure

Other things the same, during recessions taxes tend to

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

Applications: 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 Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers in Microeconomics

Measuring a Nation S Income

Measuring the Cost of Living

Production and Growth

Saving, Investment, and the Financial System

Tools of Finance

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Short-Run Tradeoff Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

Filters

A decrease in taxes aggregate demand through larger _ by households.

If the government faced a balanced budget rule, it would be forced to raise taxes or decrease spending during a recession.

To reduce aggregate demand, the government may reduce _ or increase _.