Question 1

A goal of monetary policy and fiscal policy is to

Accepted Answer

A) offset the shifts in aggregate demand and thereby eliminate unemployment. 
B) offset shifts in aggregate demand and thereby stabilize the economy. 
C) enhance the shifts in aggregate demand and thereby create fluctuations in output and employment. 
D) enhance the shifts in aggregate demand and thereby increase economic growth 
A) offset the shifts in aggregate demand and thereby eliminate unemployment. 
B) offset shifts in aggregate demand and thereby stabilize the economy. 
C) enhance the shifts in aggregate demand and thereby create fluctuations in output and employment. 
D) enhance the shifts in aggregate demand and thereby increase economic growth

Question 2

The multiplier effect

Accepted Answer

A) and the crowding-out effect both amplify the effects of an increase in government expenditures. 
B) and the crowding-out effect both diminish the effects of an increase in government expenditures. 
C) diminishes the effects of an increase in government expenditures, while the crowding-out effect amplifies the effects. 
D) amplifies the effects of an increase in government expenditures, while the crowding-out effect diminishes the effects. 
A) and the crowding-out effect both amplify the effects of an increase in government expenditures. 
B) and the crowding-out effect both diminish the effects of an increase in government expenditures. 
C) diminishes the effects of an increase in government expenditures, while the crowding-out effect amplifies the effects. 
D) amplifies the effects of an increase in government expenditures, while the crowding-out effect diminishes the effects.

Question 3

According to the theory of liquidity preference, if output decreases

Accepted Answer

A) people want to hold more money. This response is shown as a movement along the money demand curve. 
B) people want to hold more money. This response is shown as a shift of the money demand curve. 
C) people want to hold less money. This response is shown as a movement along the money demand curve. 
D) people want to hold less money. This response is shown as a shift of the money demand curve. 
A) people want to hold more money. This response is shown as a movement along the money demand curve. 
B) people want to hold more money. This response is shown as a shift of the money demand curve. 
C) people want to hold less money. This response is shown as a movement along the money demand curve. 
D) people want to hold less money. This response is shown as a shift of the money demand curve.

Question 4

When the Fed increases the money supply, we expect

Accepted Answer

A) interest rates and stock prices to rise. 
B) interest rates and stock prices to fall. 
C) interest rates to rise and stock prices to fall. 
D) interest rates to fall and stock prices to rise. 
A) interest rates and stock prices to rise. 
B) interest rates and stock prices to fall. 
C) interest rates to rise and stock prices to fall. 
D) interest rates to fall and stock prices to rise.

Question 5

In liquidity preference theory, an increase in the interest rate, other things the same, decreases the quantity of money demanded, but does not shift the money demand curve.

Accepted Answer

A) True 
 B)False

Question 6

Paul Samuelson, a famous economist, said that

Accepted Answer

A) "the bond market has predicted zero out of the past nine recessions." 
B) "the stock market has predicted zero out of the past nine recessions." 
C) "the bond market has predicted nine out of the past five recessions." 
D) "the stock market has predicted nine out of the past five recessions." 
A) "the bond market has predicted zero out of the past nine recessions." 
B) "the stock market has predicted zero out of the past nine recessions." 
C) "the bond market has predicted nine out of the past five recessions." 
D) "the stock market has predicted nine out of the past five recessions."

Question 7

In recent years, the Fed has chosen to target interest rates rather than the money supply because

Accepted Answer

A) Congress passed a law requiring them to do so. 
B) the President requested them to do so. 
C) the money supply is hard to measure with sufficient precision. 
D) changes in the interest rate change aggregate demand, but changes in the money supply do not. 
A) Congress passed a law requiring them to do so. 
B) the President requested them to do so. 
C) the money supply is hard to measure with sufficient precision. 
D) changes in the interest rate change aggregate demand, but changes in the money supply do not.

Question 8

The logic of the multiplier effect applies

Accepted Answer

A) only to changes in government spending. 
B) to any change in spending on any component of GDP. 
C) only to changes in the money supply. 
D) only when the crowding-out effect is sufficiently strong. 
A) only to changes in government spending. 
B) to any change in spending on any component of GDP. 
C) only to changes in the money supply. 
D) only when the crowding-out effect is sufficiently strong.

Question 9

According to liquidity preference theory, if there were a surplus of money, then

Accepted Answer

A) the interest rate would be above equilibrium and the quantity of money demanded would be too large for equilibrium. 
B) the interest rate would be above equilibrium and the quantity of money demanded would be too small for equilibrium. 
C) the interest rate would be below equilibrium and the quantity of money demanded would be too small for equilibrium. 
D) the interest rate would be below equilibrium and the quantity of money demanded would be too large for equilibrium. 
A) the interest rate would be above equilibrium and the quantity of money demanded would be too large for equilibrium. 
B) the interest rate would be above equilibrium and the quantity of money demanded would be too small for equilibrium. 
C) the interest rate would be below equilibrium and the quantity of money demanded would be too small for equilibrium. 
D) the interest rate would be below equilibrium and the quantity of money demanded would be too large for equilibrium.

Question 10

Other things the same, as the price level rises,

Accepted Answer

A) the interest rate rises causing aggregate demand to shift. 
B) the interest rate rises causing a movement along a given aggregate-demand curve. 
C) the interest rate falls causing aggregate demand to shift. 
D) the interest rate falls causing a movement along a given aggregate-demand curve. 
A) the interest rate rises causing aggregate demand to shift. 
B) the interest rate rises causing a movement along a given aggregate-demand curve. 
C) the interest rate falls causing aggregate demand to shift. 
D) the interest rate falls causing a movement along a given aggregate-demand curve.

Question 11

If the stock market booms, then

Accepted Answer

A) aggregate demand increases, which the Fed could offset by purchasing bonds. 
B) aggregate supply increases, which the Fed could offset by selling bonds. 
C) aggregate demand increases, which the Fed could offset by selling bonds. 
D) aggregate supply increases, which the Fed could offset by purchasing the money supply. 
A) aggregate demand increases, which the Fed could offset by purchasing bonds. 
B) aggregate supply increases, which the Fed could offset by selling bonds. 
C) aggregate demand increases, which the Fed could offset by selling bonds. 
D) aggregate supply increases, which the Fed could offset by purchasing the money supply.

Question 12

Most economists believe that fiscal policy

Accepted Answer

A) only affects aggregate demand and not aggregate supply. 
B) primarily affects aggregate demand. 
C) primarily effects aggregate supply. 
D) only affects aggregate supply and not aggregate demand. 
A) only affects aggregate demand and not aggregate supply. 
B) primarily affects aggregate demand. 
C) primarily effects aggregate supply. 
D) only affects aggregate supply and not aggregate demand.

Question 13

The idea that expansionary fiscal policy has a positive affect on investment is known as

Accepted Answer

A) monetary policy. 
B) crowding out. 
C) the investment accelerator. 
D) the multiplier. 
A) monetary policy. 
B) crowding out. 
C) the investment accelerator. 
D) the multiplier.

Question 14

Suppose the multiplier has a value that exceeds 1, and there are no crowding out or investment accelerator effects. Which of the following would shift aggregate demand to the right by more than the increase in expenditures?

Accepted Answer

A) an increase in government expenditures 
B) an increase in net exports 
C) an increase in investment spending 
D) All of the above are correct. 
A) an increase in government expenditures 
B) an increase in net exports 
C) an increase in investment spending 
D) All of the above are correct.

Question 15

If the stock market crashes, then

Accepted Answer

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

Question 16

Which of the following is correct?

Accepted Answer

A) A higher price level shifts money demand rightward. 
B) When money demand shifts rightward, the interest rate rises. 
C) A higher interest rate reduces the quantity of goods and services demanded. 
D) All of the above are correct. 
A) A higher price level shifts money demand rightward. 
B) When money demand shifts rightward, the interest rate rises. 
C) A higher interest rate reduces the quantity of goods and services demanded. 
D) All of the above are correct.

Question 17

Permanent tax changes have a _____ effect on aggregate demand compared to temporary tax changes.

Accepted Answer

The answer of Permanent tax changes have a _____ effect...

Question 18

Charisse is of the opinion that the interest rate depends on the economy's saving propensities and investment opportunities. Most economists would say that Charisse's opinion is

Accepted Answer

A) Keynesian in nature, and that her view is more valid for the long run than for the short run. 
B) classical in nature, and that her view is more valid for the long run than for the short run. 
C) Keynesian in nature, and that her view is more valid for the short run than for the long run. 
D) classical in nature, and that her view is more valid for the short run than for the long run. 
A) Keynesian in nature, and that her view is more valid for the long run than for the short run. 
B) classical in nature, and that her view is more valid for the long run than for the short run. 
C) Keynesian in nature, and that her view is more valid for the short run than for the long run. 
D) classical in nature, and that her view is more valid for the short run than for the long run.

Question 19

For the following questions, use the diagram below:
Figure 34-7.  
-Refer to Figure 34-7. The aggregate-demand curve could shift from AD1 to AD2 as a result of

Accepted Answer

A) an increase in government purchases. 
B) a decrease in net exports. 
C) households saving a smaller fraction of their income. 
D) a decrease in the price level. 
A) an increase in government purchases. 
B) a decrease in net exports. 
C) households saving a smaller fraction of their income. 
D) a decrease in the price level.

Question 20

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

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

A goal of monetary policy and fiscal policy is to

The multiplier effect

According to the theory of liquidity preference, if output decreases

When the Fed increases the money supply, we expect

In liquidity preference theory, an increase in the interest rate, other things the same, decreases the quantity of money demanded, but does not shift the money demand curve.

Paul Samuelson, a famous economist, said that

In recent years, the Fed has chosen to target interest rates rather than the money supply because

The logic of the multiplier effect applies

According to liquidity preference theory, if there were a surplus of money, then

Other things the same, as the price level rises,

If the stock market booms, then

Most economists believe that fiscal policy

The idea that expansionary fiscal policy has a positive affect on investment is known as

Suppose the multiplier has a value that exceeds 1, and there are no crowding out or investment accelerator effects. Which of the following would shift aggregate demand to the right by more than the increase in expenditures?

If the stock market crashes, then

Which of the following is correct?

Permanent tax changes have a _____ effect on aggregate demand compared to temporary tax changes.

Charisse is of the opinion that the interest rate depends on the economy's saving propensities and investment opportunities. Most economists would say that Charisse's opinion is

For the following questions, use the diagram below: Figure 34-7. -Refer to Figure 34-7. The aggregate-demand curve could shift from AD1 to AD2 as a result of

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

For the following questions, use the diagram below: Figure 34-7. -Refer to Figure 34-7. The aggregate-demand curve could shift from AD₁ to AD₂ as a result of