Question 1

An increase in the money supply will

Accepted Answer

A) increase interest rates, decreasing investment and aggregate demand. 
B) reduce interest rates, increasing investment and aggregate demand. 
C) reduce interest rates, decreasing investment and increasing aggregate demand. 
D) increase interest rates, increasing investment and aggregate demand. 
A) increase interest rates, decreasing investment and aggregate demand. 
B) reduce interest rates, increasing investment and aggregate demand. 
C) reduce interest rates, decreasing investment and increasing aggregate demand. 
D) increase interest rates, increasing investment and aggregate demand.

Question 2

Suppose that the government increases expenditures by $150 billion while increasing taxes by $150 billion. Suppose that the MPC is .80 and that there are no crowding out or accelerator effects. What is the combined effects of these changes? Why is the combined change not equal to zero?

Accepted Answer

The multiplier is 1/(1-MPC) = 1/(1-.8) =

Question 3

When the Fed sells government bonds, the reserves of the banking system

Accepted Answer

A) increase, so the money supply increases. 
B) increase, so the money supply decreases. 
C) decrease, so the money supply increases. 
D) decrease, so the money supply decreases. 
A) increase, so the money supply increases. 
B) increase, so the money supply decreases. 
C) decrease, so the money supply increases. 
D) decrease, so the money supply decreases.

Question 4

Suppose households attempt to decrease their money holdings. To counter this decrease in money demand and stabilize output, the Federal Reserve will

Accepted Answer

A) increase government spending. 
B) increase the money supply. 
C) decrease government spending. 
D) decrease the money supply. 
A) increase government spending. 
B) increase the money supply. 
C) decrease government spending. 
D) decrease the money supply.

Question 5

Suppose there were a large decline in net exports. If the Fed wanted to stabilize output, it could

Accepted Answer

A) buy bonds to raise interest rates. 
B) buy bonds to lower interest rates. 
C) sell bonds to raise interest rates. 
D) sell bonds to lower interest rates. 
A) buy bonds to raise interest rates. 
B) buy bonds to lower interest rates. 
C) sell bonds to raise interest rates. 
D) sell bonds to lower interest rates.

Question 6

According to liquidity preference theory, if the quantity of money demanded is greater than the quantity supplied, then the interest rate will

Accepted Answer

A) increase and the quantity of money demanded will decrease. 
B) increase and the quantity of money demanded will increase. 
C) decrease and the quantity of money demanded will decrease. 
D) decrease and the quantity of money demanded will increase. 
A) increase and the quantity of money demanded will decrease. 
B) increase and the quantity of money demanded will increase. 
C) decrease and the quantity of money demanded will decrease. 
D) decrease and the quantity of money demanded will increase.

Question 7

If money demand shifted to the right and the Federal Reserve desired to return the interest rate to its original value, it could

Accepted Answer

A) buy bonds to increase the money supply. 
B) buy bonds to decrease the money supply. 
C) sell bonds to increase the money supply. 
D) sell bonds to decrease the money supply. 
A) buy bonds to increase the money supply. 
B) buy bonds to decrease the money supply. 
C) sell bonds to increase the money supply. 
D) sell bonds to decrease the money supply.

Question 8

During recessions, automatic stabilizers tend to make the government's budget

Accepted Answer

A) move toward deficit. 
B) move toward surplus. 
C) move toward balance. 
D) not necessarily move the budget in any particular direction. 
A) move toward deficit. 
B) move toward surplus. 
C) move toward balance. 
D) not necessarily move the budget in any particular direction.

Question 9

If the multiplier is 6 and if there is no crowding-out effect, then a $60 billion increase in government expenditures causes aggregate demand to

Accepted Answer

A) increase by $250 billion. 
B) increase by $333 billion. 
C) increase by $360 billion. 
D) None of the above are correct. 
A) increase by $250 billion. 
B) increase by $333 billion. 
C) increase by $360 billion. 
D) None of the above are correct.

Question 10

If the marginal propensity to consume is 4/5, then a decrease in government spending of $1 billion decreases the demand for goods and services by $5 billion.

Accepted Answer

A) True 
 B)False

Question 11

In a certain economy, when income is $1000, consumer spending is $800. The value of the multiplier for this economy is 2.5. It follows that, when income is $1020, consumer spending is

Accepted Answer

A) $816. For this economy, an initial increase of $100 in consumer spending translates into a $250 increase in aggregate demand. 
B) $816. For this economy, an initial increase of $100 in consumer spending translates into a $400 increase in aggregate demand. 
C) $812. For this economy, an initial increase of $100 in consumer spending translates into a $250 increase in aggregate demand. 
D) $812. For this economy, an initial increase of $100 in consumer spending translates into an $800 increase in aggregate demand. 
A) $816. For this economy, an initial increase of $100 in consumer spending translates into a $250 increase in aggregate demand. 
B) $816. For this economy, an initial increase of $100 in consumer spending translates into a $400 increase in aggregate demand. 
C) $812. For this economy, an initial increase of $100 in consumer spending translates into a $250 increase in aggregate demand. 
D) $812. For this economy, an initial increase of $100 in consumer spending translates into an $800 increase in aggregate demand.

Question 12

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 13

A situation in which the Fed's target interest rate has fallen as far as it can fall is sometimes described as a

Accepted Answer

A) liquidity preference. 
B) liquidity trap. 
C) open-market trap. 
D) interest-rate contraction. 
A) liquidity preference. 
B) liquidity trap. 
C) open-market trap. 
D) interest-rate contraction.

Question 14

Which of the following policies would Keynes's followers support when an increase in business optimism shifts the aggregate demand curve away from long-run equilibrium?

Accepted Answer

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

Question 15

If the stock market crashes, then

Accepted Answer

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

Question 16

With respect to their impact on aggregate demand for the U.S. economy, which of the following represents the correct ordering of the wealth effect, interest-rate effect, and exchange-rate effect from most important to least important?

Accepted Answer

A) wealth effect, exchange-rate effect, interest-rate effect 
B) exchange-rate effect, interest-rate effect, wealth effect 
C) interest-rate effect, wealth effect, exchange-rate effect 
D) interest-rate effect, exchange-rate effect, wealth effect 
A) wealth effect, exchange-rate effect, interest-rate effect 
B) exchange-rate effect, interest-rate effect, wealth effect 
C) interest-rate effect, wealth effect, exchange-rate effect 
D) interest-rate effect, exchange-rate effect, wealth effect

Question 17

Figure 34-3.  
-Refer to Figure 34-3. For an economy such as the United States, what component of the demand for goods and services is most responsible for the decrease in output from Y1 to Y2?

Accepted Answer

A) consumption 
B) investment 
C) net exports 
D) government spending 
A) consumption 
B) investment 
C) net exports 
D) government spending

Question 18

Some economists argue that

Accepted Answer

A) monetary policy should actively be used to stabilize the economy. 
B) fiscal policy should actively be used to stabilize the economy. 
C) fiscal policy can be used to shift the AD curve. 
D) All of the above are correct. 
A) monetary policy should actively be used to stabilize the economy. 
B) fiscal policy should actively be used to stabilize the economy. 
C) fiscal policy can be used to shift the AD curve. 
D) All of the above are correct.

Question 19

In the short run, open-market sales

Accepted Answer

A) increase the price level and real GDP. 
B) decrease the price level and real GDP. 
C) increases the price level and decreases real GDP. 
D) decreases the price level and increases real GDP. 
A) increase the price level and real GDP. 
B) decrease the price level and real GDP. 
C) increases the price level and decreases real GDP. 
D) decreases the price level and increases real GDP.

Question 20

The goal of stabilization policy is to stabilize aggregate _____. As a result, stabilization policy will also stabilize _____ and _____.

Accepted Answer

demand, ou

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

An increase in the money supply will

Suppose that the government increases expenditures by $150 billion while increasing taxes by $150 billion. Suppose that the MPC is .80 and that there are no crowding out or accelerator effects. What is the combined effects of these changes? Why is the combined change not equal to zero?

When the Fed sells government bonds, the reserves of the banking system

Suppose households attempt to decrease their money holdings. To counter this decrease in money demand and stabilize output, the Federal Reserve will

Suppose there were a large decline in net exports. If the Fed wanted to stabilize output, it could

According to liquidity preference theory, if the quantity of money demanded is greater than the quantity supplied, then the interest rate will

If money demand shifted to the right and the Federal Reserve desired to return the interest rate to its original value, it could

During recessions, automatic stabilizers tend to make the government's budget

If the multiplier is 6 and if there is no crowding-out effect, then a $60 billion increase in government expenditures causes aggregate demand to

If the marginal propensity to consume is 4/5, then a decrease in government spending of $1 billion decreases the demand for goods and services by $5 billion.

In a certain economy, when income is $1000, consumer spending is $800. The value of the multiplier for this economy is 2.5. It follows that, when income is $1020, consumer spending is

During periods of expansion, automatic stabilizers cause government expenditures

A situation in which the Fed's target interest rate has fallen as far as it can fall is sometimes described as a

Which of the following policies would Keynes's followers support when an increase in business optimism shifts the aggregate demand curve away from long-run equilibrium?

If the stock market crashes, then

With respect to their impact on aggregate demand for the U.S. economy, which of the following represents the correct ordering of the wealth effect, interest-rate effect, and exchange-rate effect from most important to least important?

Figure 34-3. -Refer to Figure 34-3. For an economy such as the United States, what component of the demand for goods and services is most responsible for the decrease in output from Y1 to Y2?

Some economists argue that

In the short run, open-market sales

The goal of stabilization policy is to stabilize aggregate _____. As a result, stabilization policy will also stabilize _____ and _____.

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

Figure 34-3. -Refer to Figure 34-3. For an economy such as the United States, what component of the demand for goods and services is most responsible for the decrease in output from Y₁ to Y₂?

The goal of stabilization policy is to stabilize aggregate ___. As a result, stabilization policy will also stabilize _ and ___.