Question 1

If the MPC is 4/5, the multiplier is 5/4.

Accepted Answer

A) True 
 B)False

Question 2

The government builds a new water-treatment plant. The owner of the company that builds the plant pays her workers. The workers increase their spending. Firms from which the workers buy goods increase their output. This type of effect on spending illustrates

Accepted Answer

A) the multiplier effect. 
B) the crowding-out effect. 
C) the Fisher effect. 
D) the wealth effect. 
A) the multiplier effect. 
B) the crowding-out effect. 
C) the Fisher effect. 
D) the wealth effect.

Question 3

According to the "animal spirits" described by Keynes, when optimism reigns, ​households and firms

Accepted Answer

A) ​increase spending which results in inflationary pressures. 
B) ​decrease spending which results in deflationary pressures. 
C) ​increase spending which results in deflationary pressures. 
D) ​decrease spending which results in inflationary pressures. 
A) ​increase spending which results in inflationary pressures. 
B) ​decrease spending which results in deflationary pressures. 
C) ​increase spending which results in deflationary pressures. 
D) ​decrease spending which results in inflationary pressures.

Question 4

Which of the following policy alternatives would be an appropriate response to a sharp increase in investment spending, assuming policymakers want to stabilize output?

Accepted Answer

A) increase taxes 
B) increase the money supply 
C) increase government expenditures 
D) All of the above are correct. 
A) increase taxes 
B) increase the money supply 
C) increase government expenditures 
D) All of the above are correct.

Question 5

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 6

The opportunity cost of holding money

Accepted Answer

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

Question 7

According to liquidity preference theory, the slope of the money demand curve is explained as follows:

Accepted Answer

A) Interest rates rise as the Fed reduces the quantity of money demanded. 
B) Interest rates fall as the Fed reduces the supply of money. 
C) People will want to hold less money as the cost of holding it falls. 
D) People will want to hold more money as the cost of holding it falls. 
A) Interest rates rise as the Fed reduces the quantity of money demanded. 
B) Interest rates fall as the Fed reduces the supply of money. 
C) People will want to hold less money as the cost of holding it falls. 
D) People will want to hold more money as the cost of holding it falls.

Question 8

In a certain economy, when income is $100, consumer spending is $60. The value of the multiplier for this economy is 4. It follows that, when income is $101, consumer spending is

Accepted Answer

A) $60.25. 
B) $60.75. 
C) $61.33. 
D) $64.00. 
A) $60.25. 
B) $60.75. 
C) $61.33. 
D) $64.00.

Question 9

The G20 countries introduced stimulus packages that averaged ____ of GDP in 2009 and ____ in 2010.​

Accepted Answer

A) ​2%; 1.6% 
B) ​1.6%; 2% 
C) ​3%; 2% 
D) ​2%; 3% 
A) ​2%; 1.6% 
B) ​1.6%; 2% 
C) ​3%; 2% 
D) ​2%; 3%

Question 10

If, at some interest rate, the quantity of money demanded is less than the quantity of money supplied, people will desire to

Accepted Answer

A) sell interest-bearing assets, causing the interest rate to decrease. 
B) sell interest-bearing assets, causing the interest rate to increase. 
C) buy interest-bearing assets, causing the interest rate to decrease. 
D) buy interest-bearing assets, causing the interest rate to increase. 
A) sell interest-bearing assets, causing the interest rate to decrease. 
B) sell interest-bearing assets, causing the interest rate to increase. 
C) buy interest-bearing assets, causing the interest rate to decrease. 
D) buy interest-bearing assets, causing the interest rate to increase.

Question 11

The interest-rate effect is partially explained by the fact that a higher price level reduces money demand.

Accepted Answer

A) True 
 B)False

Question 12

If the MPC is 5/6 then the multiplier is

Accepted Answer

A) 6/5, so a $200 increase in government spending increases aggregate demand by $240. 
B) 5, so a $200 increase in government spending increases aggregate supply by $1000. 
C) 6, so a $200 increase in government spending increases aggregate demand by $1200. 
D) 6/5, so a $200 increase in government spending increases aggregate supply by $1200. 
A) 6/5, so a $200 increase in government spending increases aggregate demand by $240. 
B) 5, so a $200 increase in government spending increases aggregate supply by $1000. 
C) 6, so a $200 increase in government spending increases aggregate demand by $1200. 
D) 6/5, so a $200 increase in government spending increases aggregate supply by $1200.

Question 13

According to liquidity preference theory, if the price level

Accepted Answer

A) fell, the interest rate would rise, and induce investment spending to rise. 
B) fell, the interest rate would fall, and induce investment spending to fall. 
C) rose, the interest rate would rise, and induce investment spending to fall. 
D) rose, the interest rate would fall, and induce investment spending to rise. 
A) fell, the interest rate would rise, and induce investment spending to rise. 
B) fell, the interest rate would fall, and induce investment spending to fall. 
C) rose, the interest rate would rise, and induce investment spending to fall. 
D) rose, the interest rate would fall, and induce investment spending to rise.

Question 14

In which of the following cases does the aggregate-demand curve shift to the right?

Accepted Answer

A) The price level rises, causing the interest rate to fall. 
B) The price level falls, causing the interest rate to fall. 
C) The money supply increases, causing the interest rate to fall. 
D) The money supply decreases, causing the interest rate to fall. 
A) The price level rises, causing the interest rate to fall. 
B) The price level falls, causing the interest rate to fall. 
C) The money supply increases, causing the interest rate to fall. 
D) The money supply decreases, causing the interest rate to fall.

Question 15

People might withdraw money from 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 16

Figure 34-2. 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 34-2. Assume the money market is always in equilibrium. Under the assumptions of the model,

Accepted Answer

A) the real interest rate is lower at Y2 than it is at Y1. 
B) the quantity of money is the same at Y1 as it is at Y2. 
C) the price level is lower at r2 than it is at r1. 
D) All of the above are correct. 
A) the real interest rate is lower at Y2 than it is at Y1. 
B) the quantity of money is the same at Y1 as it is at Y2. 
C) the price level is lower at r2 than it is at r1. 
D) All of the above are correct.

Question 17

​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 short-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 short-run aggregate-supply curve shifts to the right.

Question 18

Government purchases are said to have a

Accepted Answer

A) multiplier effect on aggregate supply. 
B) multiplier effect on aggregate demand. 
C) liquidity-enhancing effect on aggregate supply. 
D) liquidity-enhancing effect on aggregate demand. 
A) multiplier effect on aggregate supply. 
B) multiplier effect on aggregate demand. 
C) liquidity-enhancing effect on aggregate supply. 
D) liquidity-enhancing effect on aggregate demand.

Question 19

If the marginal propensity to consume is 6/7, then the multiplier is 7.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following correctly explains the crowding-out effect?

Accepted Answer

A) An increase in government expenditures decreases the interest rate and so increases investment spending. 
B) An increase in government expenditures increases the interest rate and so reduces investment spending. 
C) A decrease in government expenditures increases the interest rate and so increases investment spending. 
D) A decrease in government expenditures decreases the interest rate and so reduces investment spending. 
A) An increase in government expenditures decreases the interest rate and so increases investment spending. 
B) An increase in government expenditures increases the interest rate and so reduces investment spending. 
C) A decrease in government expenditures increases the interest rate and so increases investment spending. 
D) A decrease in government expenditures decreases the interest rate and so reduces investment spending.

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

If the MPC is 4/5, the multiplier is 5/4.

The government builds a new water-treatment plant. The owner of the company that builds the plant pays her workers. The workers increase their spending. Firms from which the workers buy goods increase their output. This type of effect on spending illustrates

According to the "animal spirits" described by Keynes, when optimism reigns, ​households and firms

Which of the following policy alternatives would be an appropriate response to a sharp increase in investment spending, assuming policymakers want to stabilize output?

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

The opportunity cost of holding money

According to liquidity preference theory, the slope of the money demand curve is explained as follows:

In a certain economy, when income is $100, consumer spending is $60. The value of the multiplier for this economy is 4. It follows that, when income is $101, consumer spending is

The G20 countries introduced stimulus packages that averaged ____ of GDP in 2009 and ____ in 2010.​

If, at some interest rate, the quantity of money demanded is less than the quantity of money supplied, people will desire to

The interest-rate effect is partially explained by the fact that a higher price level reduces money demand.

If the MPC is 5/6 then the multiplier is

According to liquidity preference theory, if the price level

In which of the following cases does the aggregate-demand curve shift to the right?

People might withdraw money from interest-bearing accounts,

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

Government purchases are said to have a

If the marginal propensity to consume is 6/7, then the multiplier is 7.

Which of the following correctly explains the crowding-out effect?

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

According to the "animal spirits" described by Keynes, when optimism reigns, households and firms

The G20 countries introduced stimulus packages that averaged of GDP in 2009 and in 2010.

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