Question 1

A tax increase has

Accepted Answer

A) a multiplier effect but not a crowding out effect 
B) a crowding out effect but not a multiplier effect 
C) both a crowding out and multiplier effect 
D) neither a multiplier or crowding out effect 
A) a multiplier effect but not a crowding out effect 
B) a crowding out effect but not a multiplier effect 
C) both a crowding out and multiplier effect 
D) neither a multiplier or crowding out effect

Question 2

Figure 34-1  
-Refer to Figure 34-1. There is an excess demand for money at an interest rate of

Accepted Answer

A) 2 percent. 
B) 3 percent. 
C) 4 percent. 
D) None of the above is correct. 
A) 2 percent. 
B) 3 percent. 
C) 4 percent. 
D) None of the above is correct.

Question 3

Supply-side economists believe that changes in government purchases affect

Accepted Answer

A) only aggregate demand. 
B) only aggregate supply. 
C) both aggregate demand and aggregate supply. 
D) neither aggregate demand nor aggregate supply. 
A) only aggregate demand. 
B) only aggregate supply. 
C) both aggregate demand and aggregate supply. 
D) neither aggregate demand nor aggregate supply.

Question 4

​​According to the IGM poll, what percentage of economists polled agreed that the unemployment rate at the end of 2010 was lower with ARRA than without?

Accepted Answer

A) ​97% 
B) ​75% 
C) ​19% 
D) ​3% 
A) ​97% 
B) ​75% 
C) ​19% 
D) ​3%

Question 5

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. The marginal propensity to consume for this economy is

Accepted Answer

A) 0.650. 
B) 0.750. 
C) 0.650 or 0.664, depending on whether income is $10,000 or $11,000. 
D) 0.800. 
A) 0.650. 
B) 0.750. 
C) 0.650 or 0.664, depending on whether income is $10,000 or $11,000. 
D) 0.800.

Question 6

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 7

Which of the following policy actions shifts the aggregate-demand curve?

Accepted Answer

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

Question 8

Suppose that the government spends more on a missile defense program. What does this do to aggregate demand? How is your answer affected by the presence of the multiplier, crowding-out, taxes, and investment-accelerator effects?

Accepted Answer

The increase in expenditures means that

Question 9

When the money supply increases, there is an excess _____ of money. As a result, interest rates _____ and aggregate demand _____.

Accepted Answer

supply, fa

Question 10

President Kennedy's team of economic advisers included such prominent economists​ as

Accepted Answer

A) ​James Tobin and Robert Solow. 
B) ​N. Gregory Mankiw and Paul Krugman. 
C) ​John Maynard Keynes and Friedrich Hayek. 
D) ​Austan Goolsbee and Justin Wolfers. 
A) ​James Tobin and Robert Solow. 
B) ​N. Gregory Mankiw and Paul Krugman. 
C) ​John Maynard Keynes and Friedrich Hayek. 
D) ​Austan Goolsbee and Justin Wolfers.

Question 11

Which of the following actions might we logically expect to result from rising stock prices?

Accepted Answer

A) Jim decreases his consumption spending. 
B) Firms sell fewer shares of new stock. 
C) Firms spend more on investment. 
D) None of the above is correct. 
A) Jim decreases his consumption spending. 
B) Firms sell fewer shares of new stock. 
C) Firms spend more on investment. 
D) None of the above is correct.

Question 12

If the interest rate is above the Fed's target, the Fed should

Accepted Answer

A) buy bonds to increase bank reserves. 
B) buy bonds to decrease bank reserves. 
C) sell bonds to increase bank reserves. 
D) sell bonds to decrease bank reserves. 
A) buy bonds to increase bank reserves. 
B) buy bonds to decrease bank reserves. 
C) sell bonds to increase bank reserves. 
D) sell bonds to decrease bank reserves.

Question 13

If the Federal Reserve's goal is to stabilize aggregate demand, then in response to an increase in money demand, the Federal Reserve will _____ the money supply.

Accepted Answer

The answer of If the Federal Reserve's goal is to...

Question 14

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. If the money-supply curve MS on the left-hand graph were to shift to the left, this would

Accepted Answer

A) represent an action taken by the Federal Reserve. 
B) shift the AD curve to the left. 
C) create, until the interest rate adjusted, an excess demand for money at the interest rate that equilibrated the money market before the shift. 
D) All of the above are correct. 
A) represent an action taken by the Federal Reserve. 
B) shift the AD curve to the left. 
C) create, until the interest rate adjusted, an excess demand for money at the interest rate that equilibrated the money market before the shift. 
D) All of the above are correct.

Question 15

Scenario 34-2. The following facts apply to a small, imaginary economy.
• Consumption spending is $6,720 when income is $8,000.
• Consumption spending is $7,040 when income is $8,500.
-Refer to Scenario 34-2. In response to which of the following events could aggregate demand increase by $1,500?

Accepted Answer

A) A stock-market boom stimulates consumer spending by $300, and there is an operative crowding-out effect. 
B) A stock-market boom stimulates consumer spending by $550, and there is a small operative crowding-out effect. 
C) An economic boom overseas increases the demand for U.S. net exports by $550, and there is no crowding-out effect. 
D) An economic boom overseas increases the demand for U.S. net exports by $300, and there is no crowding-out effect. 
A) A stock-market boom stimulates consumer spending by $300, and there is an operative crowding-out effect. 
B) A stock-market boom stimulates consumer spending by $550, and there is a small operative crowding-out effect. 
C) An economic boom overseas increases the demand for U.S. net exports by $550, and there is no crowding-out effect. 
D) An economic boom overseas increases the demand for U.S. net exports by $300, and there is no crowding-out effect.

Question 16

If the stock market booms, then

Accepted Answer

A) aggregate demand increases, which the Fed could offset by increasing the money supply. 
B) aggregate supply increases, which the Fed could offset by increasing the money supply. 
C) aggregate demand increases, which the Fed could offset by decreasing the money supply. 
D) aggregate supply increases, which the Fed could offset by decreasing the money supply. 
A) aggregate demand increases, which the Fed could offset by increasing the money supply. 
B) aggregate supply increases, which the Fed could offset by increasing the money supply. 
C) aggregate demand increases, which the Fed could offset by decreasing the money supply. 
D) aggregate supply increases, which the Fed could offset by decreasing the money supply.

Question 17

Which of the following sequences best represents the crowding-out effect?

Accepted Answer

A) government purchases ↑ ⇒ GDP ↑ ⇒ supply of money ↓⇒ equilibrium interest rate ↑ ⇒ quantity of goods and services demanded ↓ 
B) government purchases ↓ ⇒ GDP ↓ ⇒ demand for money ↓⇒ equilibrium interest rate ↓ ⇒ quantity of goods and services demanded ↓ 
C) government purchases ↑ ⇒ GDP ↑ ⇒ demand for money ↑⇒ equilibrium interest rate ↑ ⇒ quantity of goods and services demanded ↓ 
D) taxes ↑ ⇒ GDP ↓ ⇒ demand for money ↓ ⇒ equilibrium interest rate ↑⇒ quantity of goods and services demanded ↓ 
A) government purchases ↑ ⇒ GDP ↑ ⇒ supply of money ↓⇒ equilibrium interest rate ↑ ⇒ quantity of goods and services demanded ↓ 
B) government purchases ↓ ⇒ GDP ↓ ⇒ demand for money ↓⇒ equilibrium interest rate ↓ ⇒ quantity of goods and services demanded ↓ 
C) government purchases ↑ ⇒ GDP ↑ ⇒ demand for money ↑⇒ equilibrium interest rate ↑ ⇒ quantity of goods and services demanded ↓ 
D) taxes ↑ ⇒ GDP ↓ ⇒ demand for money ↓ ⇒ equilibrium interest rate ↑⇒ quantity of goods and services demanded ↓

Question 18

In 2009 President Obama and Congress increased government spending. Some economists thought this increase would have little effect on output. Which of the following would make the effect of an increase in government expenditures on aggregate demand smaller?

Accepted Answer

A) the MPC is small and changes in the interest rate have a small effect on investment 
B) the MPC is small and changes in the interest rate have a large effect on investment 
C) the MPC is large and changes in the interest rate have a small effect on investment 
D) the MPC is large and changes in the interest rate have a large effect on investment 
A) the MPC is small and changes in the interest rate have a small effect on investment 
B) the MPC is small and changes in the interest rate have a large effect on investment 
C) the MPC is large and changes in the interest rate have a small effect on investment 
D) the MPC is large and changes in the interest rate have a large effect on investment

Question 19

According to the theory of liquidity preference, the interest rate adjusts to balance the supply of, and demand for, loanable funds.

Accepted Answer

A) True 
 B)False

Question 20

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.

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

A tax increase has

Figure 34-1 -Refer to Figure 34-1. There is an excess demand for money at an interest rate of

Supply-side economists believe that changes in government purchases affect

​​According to the IGM poll, what percentage of economists polled agreed that the unemployment rate at the end of 2010 was lower with ARRA than without?

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. The marginal propensity to consume for this economy is

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

Which of the following policy actions shifts the aggregate-demand curve?

Suppose that the government spends more on a missile defense program. What does this do to aggregate demand? How is your answer affected by the presence of the multiplier, crowding-out, taxes, and investment-accelerator effects?

When the money supply increases, there is an excess _____ of money. As a result, interest rates _____ and aggregate demand _____.

President Kennedy's team of economic advisers included such prominent economists​ as

Which of the following actions might we logically expect to result from rising stock prices?

If the interest rate is above the Fed's target, the Fed should

If the Federal Reserve's goal is to stabilize aggregate demand, then in response to an increase in money demand, the Federal Reserve will _____ the money supply.

If the stock market booms, then

Which of the following sequences best represents the crowding-out effect?

In 2009 President Obama and Congress increased government spending. Some economists thought this increase would have little effect on output. Which of the following would make the effect of an increase in government expenditures on aggregate demand smaller?

According to the theory of liquidity preference, the interest rate adjusts to balance the supply of, and demand for, loanable funds.

According to liquidity preference theory, the money-supply curve 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

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 IGM poll, what percentage of economists polled agreed that the unemployment rate at the end of 2010 was lower with ARRA than without?

When the money supply increases, there is an excess ___ of money. As a result, interest rates _ and aggregate demand ___.

President Kennedy's team of economic advisers included such prominent economists as